The Luis Suarez approach to banking regulation

Suarez: personally liable

It’s a sign of the times when Luis Suarez biting someone fails to get much of a reaction out of me.

Did you see the Uruguayan sink his teeth into Italian defender Giorgio Chiellini’s shoulder during last week’s World Cup game? You don’t have to follow football, it was all over the news!

I know, I know. I should be appalled, but I’m not. All the cynicism surrounding the modern game means my sense of outrage has become quite hard to provoke. At least football’s governing body FIFA took a firm view, and moved swiftly to fine Suarez and ban him for four months.

So why am I talking about football in an investing newsletter? Well, last week I argued that the beautiful game has more in common with the banking industry than you might think.

Now I’m picking up this story again, to answer an excellent comment from one Sleuth reader on last week’s issue.

Today’s question is how we should punish people who transgress – footballer or banker – and if banking could learn a few lessons from football.

Let’s dive right in.

The difference between football and banking

So, last time I mentioned a couple of similarities I see between banking and football.

But as one reader commented, there’s one key difference between them: “If a player commits a disciplinary offence, it’s he who pays the fine, not his club.”

In contrast, when bank employees transgress, it’s the shareholders who are left picking up the tab.

This is a really good point. Unlike in banking, the principle in football is to punish the player, not the organisation.

Of course, the Suarez case shows that even in football, an innocent organisation can still end up being damaged.

Suarez will end up suffering financially, but he’s so well rewarded that I doubt he’ll miss the money. Due to his ban, however, his club Liverpool will lose last year’s top Premier League goal scorer for at least 12 matches – even though he was on international duty when the incident occurred.

Still, I think there could be a lesson here. Is it time to start making naughty bankers, like naughty footballers, personally liable?


MoneyWeek Trader is our FREE spread betting & trading email offering you the very best tips, secrets and guidance from our trading expert, John Burford, who has years of first-hand experience.

To start receiving John's emails three times a week (plus occasional promotions), enter your email address below:

Who’s really getting punished here?

Why should we? Well, first of all, in banking as on the football pitch, fines have become so commonplace that the sense of shock has been lost.

But if you look at them, some of these numbers really are staggering.

Leading US bank JP Morgan has been fined more than $25bn over the last couple of years. That’s equivalent to the entire market value of BAE Systems!

Barclays is also back in the dock, despite having just settled a £290m fine for fixing Libor, the interest rate benchmark. This time it’s over the running of its ‘dark pool’ equity trading facility. The charge is a familiar one – failing to offer transparency and act in the best interests of clients.

If the charges are accepted or proved, another big fine seems inevitable.

And this is where the big problem lies. When a bank is fined, it doesn’t hit the perpetrators. No – it hits the shareholders.

Barclays’ shareholders have already taken a hit on this one – shares have fallen back to late 2012 levels. That’s not the only issue. Fines also weaken balance sheets, making it harder for banks to lend.

Will these banks’ management be punished as severely as they should be? Somehow I doubt it. JP Morgan’s CEO, Jamie Dimon, has remained in charge throughout – the best paid leader in the industry, earning around $20m last year.

Surely there must be a better way of doing things? Well, it seems that there is.

Light at the end of the tunnel

The current system clearly isn’t working. Big banks continue to nail their shareholders by incurring huge fines, showing that this ‘punishment’ is not an effective deterrent.

But there are signs that at last things might be moving in the right direction. French bank BNP Paribas has just been clobbered with an $8.9bn fine for sanctions busting.

As part of that, several dozen bankers have been demoted and had their pay cut as part of the punishment. About a dozen have lost their jobs.

A US government lawyer on the case seems to get the message. She said that the only way to stop this from happening again was for “employees who knowingly violated the law to face appropriate consequences for their actions”.

As with Suarez, we might argue about what exactly the appropriate punishment should be, but it has to be one that hits the individual perpetrators hard. Landing the shareholders with a headline-grabbing fine just isn’t going to do it.

I’d like to think the penny is dropping with BNP case. I’m not going to hold my breath, but it’s possible that things are starting to move in the right direction.

If employees keep acting against their clients’ interests, then as a society we have a big problem.


MoneyWeek Trader is our FREE spread betting & trading email offering you the very best tips, secrets and guidance from our trading expert, John Burford, who has years of first-hand experience.

To start receiving John's emails three times a week (plus occasional promotions), enter your email address below:

  • Longtermyieldman

    I’m really glad you’re giving voice to this injustice, which has been allowed to persist for far too long. If bankers create value, they and the shareholders both benefit, which is fine. If they destroy value, only the shareholders lose out, which is unfair. And if bankers break the law, not only do they still benefit (bonuses paid on value notionally created) but the shareholders pick up the tab three times over: for the bonuses, the compensation, and the fines.

    What I’d like to see goes a lot further than the BN Paribas deal: a few demotions, salary cuts and (doubtless well-cushioned) departures is not sufficient. Rather, I would like to see bankers paid only basic salaries unless they sign up to an equity participation arrangement under which their own personal net worth is at first risk if their trades lose money or result in compensation payouts or fines.

    Not only would this force them to confront the reality that wrong-doing incurs costs but it would also make them a whole lot more risk-averse, their interests for once aligned with those of shareholders.

  • Walbur

    IFA’s, accountants and solicitors, professions which handle clients’ funds, have to be registered with a professional body, and can be disbarred from practise if they transgress. Why isn’t there a chartered institute of bankers, to which any bank employee who wants to rise above teller or clerk must belong? If a miscreant’s licence to work in the industry could be withdrawn summarily it might concentrate minds wonderfully.

  • sodit

    Bank bonuses should be paid in the form of a right to the dividends on the bank’s shares.
    The bank uses the bonus pool to buy its own shares, or better still (from the bank’s point of view) to create new shares which it buys at the market price. It then grants its employees the rights to the dividend stream from those shares in whatever proportions they’re deemed to have earned them.
    This way the bank enhances its capital, so they win.
    The employees will be encouraged to make decisions which are optimal over the long term, so shareholders and society win.
    The employees will be invested in the very best share in the market… and it’s up to them to make that statement true, so they win (and if they don’t they’ve only themselves to blame).
    Naughty behaviour will be punished by a personal loss, and the opprobrium of one’s colleagues, who’ll have also lost, thereby, through social pressure, creating a culture of good behaviour.

  • willwri

    luis suarez got fined £66k, and banned for many weeks. Liverpool will pay him £3m for not playing. Surely fifa should have fined him £3m and made him play for free. Probably wearing a hannibal lecter mask.
    Bankers who transgress should be banned from any financial company for years. That threat is worth having. Hit either where it really hurts

  • Leven

    Hmmm I think the real culprits here are the lazy, far too friendly shareholders (mainly pension funds I imagine).

    “The $9 billion that’s walking out the door today is your money,” FBI Director James B. Comey said at a Monday news conference. Until shareholders hold corporate chiefs accountable for following the law, “the money will keep walking out the door.”

  • MartinH

    Whilst I agree with practically all that has been said, why is no one recommending criminal sanctions and personal fines? I suspect that the only thing that will really register with these perpetrators is a loss of liberty and their personal fortune.

  • amazed

    Who is guilty.
    Remember that the 2008 crisis started with loans which were given to people who couldnt afford them. In the UK they were called “Self Certifying Loans” in the USA ” Liar Loans ” and in Spain “Social Loans “.In other words, ordinary people lied to obtain the loan, aided, abetted and encouraged by the so called professionals.In Spain the ” notaries ” ie legal representatives of the legal system sat in on ” cash deals ” or ” black money transfers “.So in the Suarez example, he was encouraged to bite by the club, trained to do it by his country managers, not given as a foul by the ref, with FIFA thinking it all didnt matter anyway and his colleagues wishing they had thought about doing it first. And the silly spectators continued to pay to watch ” the beautiful game “. Its about time all of us take a good long hard look at the values we hold when we think about financial matters.

MoneyWeek magazine

Latest issue:

Magazine cover
Prime location

The best property buys in the eurozone

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

The Kids' Portfolio: the four best funds to buy for your children

Investing for your children's long-term future is an excellent idea. But what should you buy? The Kids' Portfolio is a simple collection of four funds intended to be tucked away for 20 to 40 years.