The Shady Side of Banking

The following separate public complaints, legislative investigation and media reports about banking activities go as high up as the Federal Reserve Bank. On first impression they certainly show a dubious side to banking. What is demonstrated by these banking issues are questionable practices that may constitute extortion of money from tax payers, participation in conflict of interest, and violation of securities law all without serious repercussion.

Complaint 1: BofA shifting derivatives to FDIC insured accounts

This was reported by Bloomberg and highlighted by The Daily Bail on October 18th, 2011. Derivatives are the same type of financial instruments that caused the financial crisis of 2008; they are risky assets. To protect the bank from this risk the assets are claimed to have been moved to accounts that the Federal Depository Insurance Corporation insures. This is the same insurer that protects savings and checking accounts and is financing by the government. The complaint is that Bank of America is leaning on the U.S. Government, and hence U.S. Taxpayers, to hedge its risky decisions.

Complaint 2: Federal Reserve financing foreign governments

The Federal Reserve Bank is supposed to be the U.S. Central bank, not the global central bank or 'socialism for the wealthy'. It's primary mandate is portrayed to be the inflationary and economic concerns of the U.S. People, however  a legislative audit of the Federal Reserve Bank show $16 trillion in additional previously undisclosed liabilities, an amount not evident on its 'selected liabilities'  The fact these loans were not openly disclosed seems a little strange since the Federal Reserve Balance Sheet gives the impression of being complete, the Wall Street Journal does not show it on one of its versions of the Fed Balance sheet, and according to Senator Sanders of Vermont, a reasonable suspicion of conflict of interest occurs when banking officials receiving loans also serve the Federal Reserve Bank. The following video elaborates on this issue.

Complaint 3: JP Morgan Chase manipulating silver price

This particular concern has been spearheaded by Max Kesier of the Keiser Report on Russian Television. The claim, as illustrated in the video below is that JP Morgan Chase & Co. (JPM) practiced naked short selling, a trading method in which shares not owned are traded, with the aim of price manipulation.  A congressional hearing also took place in regard to this.

Complaint 4: Banks using loan loss reserves to report profits

This is a recent concern during Q3 2011 earnings season in reference to Citi Group in particular. NDTV describes how Citigroup earned 74 percent in Q3 using loan loss reserves to offset bad loan expenses. The accounting basis for this is also described in an October 17th, 2011 Moneycation Financial News reference to the Economic Review.

Different types of bank fraud

Banking fraud is any falsification, theft, misinformation or otherwise illegal method used to obtain money through or from a federally regulated banking system. According to Title 18 of the U.S. Code, bank fraud is punishable by 30 years in prison and/or $1 million in financial penalty. Bank fraud costs the financial industry billions of dollars annually and can be perpetrated by bank employees, bank customers, third parties, or organized crime rings.

Different types of bank fraud may involve various forms of identity theft and can be divided into five categories including electronic, check, international, loan and credit card fraud. Accounting and securities fraud may operate independently of, or in conjunction with the following types of bank fraud. Suspected bank fraud can be reported to the Financial Fraud Enforcement Task Force.

• Electronic bank fraud

Electronic bank fraud can involve identity theft via interception of online banking data or unauthorized wiring of money via a financial institution. Trojan horses, and phishing schemes make use of email to install and manipulate unsuspecting people into divulging personal financial information. After information is obtained, the parties in illegal possession of banking information may then attempt to use it to deceitfully obtain funds. 

• Check fraud

Check fraud has been in existence as long as checks have and has many methods. Some of these methods of bank fraud include counterfeit checks, check kiting, and altering checks.  According to the U.S. Department of the Treasury's Office of the Comptroller of Currency, organized crime gangs also make use of check fraud to target corporate accounts. A number of methods are employed to prevent check fraud, but the safest way to avoid being victimized by it is to not use checks.

• International bank fraud

International bank fraud may combine check fraud with offshore banking fraud in the form of false lottery payments or check payments.  For example, an alleged lottery winner may be required to provide an upfront fee or transfer of money before the deposited check is identified as fake. When the money doesn't materialize, the criminal may be long gone with your money. The use of offshore banking institutions may also constitute bank fraud if it involves tax evasion. 'Prime Bank Fraud' is also a form of international bank fraud that promises high yields of return for upfront costs via investment in 'international securities' that don't actually exist.

• Loan fraud

Loan fraud may be conducted on the part of financial institutions and borrowers. In the case of borrowers, loan applications may contain false information so as to propel the bank of a false financial security. On the other hand, banks may also defraud borrowers as is the case with mortgage fraud. The U.S. Federal Bureau of Investigation (FBI) tracks and reports information on this and other types of fraud on its website. Mortgage fraud misleads borrowers regarding the terms and costs of a loan product for the purpose of inappropriately or abusively generating revenue.

• Credit card fraud

Credit card fraud is perpetrated when identify theft or false identity is used to unlawfully obtain funds from financial institution via credit card. In many cases of credit card fraud, the card or the identity of the card holder is intercepted using any number of techniques including  sale of false products, phishing, skimming, and mail theft.

 
Sources:

1. http://bit.ly/bmmwYX (Federal Bureau of Investigation)
2. http://bit.ly/aBlwo3 (U.S. Treasury Comptroller of Currency)
3. http://bit.ly/ctN5fe (Office of the Comptroller of Currency)
4. http://bit.ly/b8q0PO (spamlaws.com)
5. http://bit.ly/dBzUaP (Securities and Exchange Commission