Do Bank Scandals Even Matter Now?

Call it the summer of the banking scandal. The PFGBest CEO embezzles $200 million in client funds and confesses it all before a botched suicide attempt. JP Morgan loses a couple of billion in bad trades, and Jaime Dimon has to testify before Congress. British banks are busted for fixing the LIBOR rates, leading to resignations, firings, and fines. HSBC is accused of money laundering for terrorists in an ongoing debacle. And with so many scandals going on in the financial space, millions around the world should be up in arms.

Instead, the global reaction might be better described as a yawn. Banking scandals are nothing new these days, and they’re certainly not nearly as interesting as the latest happenings in the Olympic games. It’s as though banking scandals don’t even matter anymore … but they should. Here’s three reasons why the broken system still matters, and what you should be watching out for as the scandals continue.

Bank Scandals = Consumer Regulation

One major knee-jerk reaction to bank scandals is additional regulations from government and industry watchdogs. Embarrassed at being caught not paying attention to the dirty work happening under their noses, regulators and governments want to be seen as “doing something” about the mess. Unfortunately, the things they do usually end up hurting the average Joe a lot more than they hurt lying, cheating, and dishonest bankers.

Take the new credit card processing fees as one example. They were tagged into a bill trying to reign in scandals in the credit card industry, but instead they’ve come back to bite small business owners right in the rear. As a result, many small businesses are reluctant to continue taking credit cards due to the rising costs of the processing. Meant to hurt big, bad business, the fees are instead adding expenses and challenges to small businesses and consumers trying to support local retailers.

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Bank Scandals = Loss of Privacy

Another reason bank scandals still matter is that they have major potential to reduce your financial privacy. Take the Patriot Act as an early example of this – provisions meant to stop drug traffickers and terrorists from opening bank accounts instead made it more of a hassle for regular people to do their banking. Add-on provisions targeting illicit cash flows and potential tax dodgers have made Americans unwanted at banks around the world, since foreign bankers don’t want to turn over all their records to U.S. agencies for compliance inspections.

Anything you purchase with a debit or credit card is tracked. The databases with your information are supposed to be private, but with all the hacks and security breaches going on, the collected data is essentially available to the highest bidder. There’s government watchdogs looking for “suspicious” transactions, industry sales figures looking for new ways to market to you, and the ubiquitous identity thieves looking for a new ways to harvest your account data for their own ends. Stopping terrorists and drug runners from having access to cash? No. Stopping you from having a private financial life? Oh, yes.

Bank Scandals = Currency Controls

Bank scandals also matter because they make it more difficult for you to move your money around. The threshold for mandatory reporting on what you do with your cash is now $10,000, but bankers have the discretion to file additional reports on what you do in cash transactions if they think it is “suspicious” activity. In other countries with more scandals than the U.S., it is now required to show transaction records verifying that your cash was honestly earned before making major purchases – a hurdle that requires turning over all your tax and income records to inspectors in order to buy cars, homes, and businesses.

The modern plague of banking regulations doesn’t seem to be going away any time soon – and the accompanying regulation is the real problem. Instead of shrugging off each new scandal as it happens, pay attention. The next round of regulations just may make your life and your business subject to more scrutiny, rules, and government control than ever.