The History of Bank

Understanding the History of

Banking
 Italy
 BANCO
 Common Commercial Tool
 Merchants and Goldsmiths
 1407 Bank of Saint George
The First Actual Bank

 Julius Caesar, Land in lieu of loan

 16th century England, Usury
Visa Royale

 1557 Phillip II of Spain 1st world Bankruptcy

Adam Smith and Modern Banking

 The Invisible Hand

 Alexander Hamilton
Bank Issues
Subprime Mortgage Crisis (2005 -
2008)
 The US subprime mortgage crisis was triggered by a steep decline in house prices
after the collapse of the housing bubble, which had peaked in early 2006. US and
European banks had offered mortgages at high rates of interest to borrowers who
could not afford the repayments, often luring them with attractive borrowing
incentives and lax qualification thresholds. Many lenders offered interest-only
mortgages and some borrowers even defaulted on the first payment. The fall in house
prices led to mortgage defaults, foreclosures, and the devaluation of housing-related
securities. US and European banks were accused of misrepresenting the risks of
mortgage-loan securities, particularly those sold to the US housing agencies Fannie
Mae and Freddie Mac, which lost an estimated USD 30 billion on these types of
investments. In 2011, the US Securities and Exchange Commission filed lawsuits against
several firms accused of misrepresenting mortgage-backed securities. Between
December 2014 and March 2017, the banks accused of contributing to the crisis paid
around USD 23.8 billion in settlements and fines. In 2013, the banks also agreed to pay
USD 3.3 billion to settle allegations of mortgage fraud filed by the US Office of the
Comptroller of the Currency, who had accused them of operating a scheme to
foreclose on as many homes as possible between 2009 and 2010. It is claimed that
the sub-prime mortgage crisis contributed to the US recession of December 2007 to
June 2009, and was ultimately the catalyst for the 2008 collapse of the global
financial markets.
 Providing insurance for $300 billion in mortgages estimated to assist
400,000 homeowners.
 Raises the dollar limit of the mortgages the GSEs can purchase.
 Community assistance to help local governments buy and renovate
foreclosed properties.
 Executive raise
Lehman Brothers Collapse (2008)

 On September 15, 2008, Lehman Brothers, at that time the fourth largest
investment bank in the US, filed for bankruptcy after admitting that it had made
losses of USD 3.9 billion. It was the largest bankruptcy filing ever recorded in the
United States and it triggered a drop of over 500 points in the Dow Jones Index.
The collapse was blamed on Lehman’s over-exposure to the sub-prime
mortgage crisis. Lehman Brothers had moved aggressively into the mortgage
market in 1997 when it bought Aurora Loan Services, and then consolidated its
position three years later by purchasing BNC Mortgage LLC. By 2006 these two
companies were lending a total of around USD 50 billion a month. Some people
described Lehman Brothers as a “real estate hedge fund disguised as an
investment bank.” In 2008, the company had assets of around USD 680 billion
against a capital of only USD 22.5 billion. As real estate values fell, the bank
allegedly made huge losses in low rate mortgage-backed securities. Failed
attempts by the Federal Reserve Bank of New York and senior management of
leading Wall Street banks to find a solution left Lehman Brothers no choice but to
file for bankruptcy. The incident triggered deep repercussions in the financial
services sector and the scandal fueled the 2008 global financial crisis.
 Express a clear rationale for key decisions
 Treasury’s legislative proposal to extend the FDIC broad resolution
powers over any insolvent financial institution that poses a serious
threat to the entire financial system.
UK Payment Protection Insurance
Scandal (2006 - ongoing)
 Payment Protection Insurance (PPI) in the UK was created to help those
who were unable to work due to illness or redundancy. In the 1990s,
banks and mortgage lenders began to aggressively sell such policies as
part of a mortgage or loan package, often without the knowledge of
the client. An investigation carried out by the Citizens Advice Bureau
revealed that PPI was adding a minimum of 20 percent to the cost of a
loan, and that the insurance was often mis-sold to people who did not
need it or who would never be able to claim. In 2006, the UK Financial
Services Authority, later known as the UK Financial Conduct Authority,
began to fine banks on charges of mis-selling PPI, and thousands of
consumers began claiming refunds and compensation from the banks
and brokers. The UK Financial Services Authority reported that more
than 45 million PPI policies had been sold and it was estimated that
banks and financial services companies would have to pay more than
GBP 40 billion (USD 47.3 billion) to handle the cost of claims. In March
2017, the UK’s Financial Conduct Authority imposed a deadline of
August 29, 2019 for customers to claim refunds for mis-sold PPI policies.
 Lessons learned from PPI can be seen in most of the policy
developments of the FCA.
 The problem with PPI was not the product but how it was sold.
 The ombudsman's work on PPI has shown how effective consumer
dispute resolution can be.
Madoff Ponzi Scheme (2008)

 In December 2008, Bernard Madoff, the head of Madoff Securities

International, was arrested in the US for orchestrating a Ponzi
scheme worth USD 65 billion, the biggest investment fraud in Wall
Street history. Mr. Madoff, who had been a former non-executive
chairman of Nasdaq, convinced thousands of people to invest their
savings after falsely guaranteeing them extremely high returns. Peter
Madoff, the brother of Bernard Madoff, was Senior Managing
Director of Madoff Securities. The company also employed Bernard
Madoff’s two sons, Andrew and Mark. In June 2009, Bernard Madoff
was sentenced to 150 years in prison and Peter Madoff was
sentenced to ten years. Mark Madoff committed suicide in 2010.
Various banks have been accused of harboring money belonging
to the estate of Madoff’s collapsed investment firm.
 Harry Markopolos
 Financial Transparency Act, HR 2477.
 The Data Act means better transparency for taxpayers, better
internal government management and automatic reporting for
grantees and contractors.
Wells Fargo Unauthorized Account
Openings (2015 - 2017)
 In May 2015, a civil lawsuit was filed against Wells Fargo, accusing the bank of
unlawful and fraudulent conduct. Reportedly, the bank had imposed a rigid
sales quota on its employees, and had encouraged them to misuse their
customers’ confidential information to open unauthorized accounts that
generated fees for the bank as well as commission for its staff. The US authorities
launched an investigation and in September 2016, the Consumer Financial
Protection Bureau, the Los Angeles City Attorney, and the US Office of the
Comptroller of the Currency fined Wells Fargo USD 185 million for opening more
than 2 million bank accounts or credit card applications between May 2011 and
July 2015 without the knowledge or the permission of its customers. In the same
month the FBI, federal prosecutors in California and New York, and the House of
Representatives’ Financial Service Committee began investigating misconduct
at the bank. In March 2017, the US Office of the Comptroller of the Currency
claimed that there had been over 700 complaints about the aggressive sales
tactics employed by Wells Fargo staff as early as 2010. However, the company’s
board of directors has insisted that it was never informed of these complaints.
Around 5,300 employees of the bank lost their jobs as a result of the
investigations. In October 2016, Mr. John Stumpf, the CEO of Wells Fargo,
resigned his position two weeks after being questioned by the US Senate.
 Basel III

Circular No. 781 01.15.2013

Basel III Implementing Guidelines on Minimum
Capital Requirements
 Basel I
Circular No. 400 09.01.2003
Circular No. 280 03.29.2001
Guidelines on the adoption of the risk-based capital
adequacy framework by stand-alone quasi-banks
Guidelines on the adoption in the Philippines of the risk-based
capital adequacy framework pursuant the General Banking
Law of 2000 (superseded by Circular No. 688)

 Basel I.5
Revised Risk-Based Capital Adequacy Framework For
Circular No. 688 05.26.2010 Stand-Alone Thrift Banks, Rural Banks and
Cooperative Banks

 Basel II
Revised Risk-Based Capital Adequacy Framework For
Circular No. 538 08.04.2006 Universal and Commercial Banks and their Subsidiary Banks
and Quasi-banks
 The central bank's order to close 14 rural banks in 2015 leads to the
continuing decline of established banks in the country.
 The number of banks of operating in the Philippines continued to
decline in 2015 with the exit of weak players, particularly rural banks.
 The latest data of the Bangko Central ng Pilipinas (BSP) released on
Monday, March 28, showed the number of big and small banks
operating in the country reached 632 in 2015, less than 2014's 648.
 This indicates the continued consolidation of banks as well as the
exit of weaker players in the banking system," the BSP said.
 President Benigno Aquino III signed Republic Act No. 10641 in July
last year, amending the foreign banks law by removing the limit of
foreign banks in the country earlier set at only 10.
 Foreign banks under the new law have also been allowed to own as
much as 100% of any local bank, removing the previous cap of 60%.
 So far, the BSP has also allowed 6 more foreign banks to set up shop
in the Philippines.
 These include Sumitomo Mitsui of Japan, Cathay United Bank of
Taiwan, the Industrial Bank of Korea, Seoul-based Shinhan Bank,
Yuanta Bank of Taiwan, and United Overseas Bank Limited (UOB) of
Singapore.