Thursday, November 13, 2014

Put A Bank's Entire Executive Suite In Jail

What do Sweden, Iceland and now Afghanistan have in common?   They put bank executives in jail should there be mismanagement that leads to government assistance or damage to depositors.   Sweden and Iceland fire the entire executive suite and jail senior executives in the case of incompetence and/or malfeasance.

Afghanistan also jailed two executives for fraud in a 2010 bank failure that amounted to about 5% of the country's GDP.  From AP (h/t to Zero Hedge)
Two senior officials of an Afghan bank that collapsed beneath almost $1 billion in debt were sentenced in a Kabul court on Tuesday to 15 years prison each for embezzlement and fraud. The scandal in 2010 shook confidence in Afghanistan's tiny banking sector.
These practices work. You don't need onerous oversight, a big bureaucracy and 10s of thousands of pages of regulation such as the still unfinished Dodd Frank law to fix the banker's excesses -- just plain and simple financial malfeasance laws that allow serious prosecution of the excessive risk takers.  That and conservative mandated capital levels and get rid of ALL of  the off-balance sheet items/accounting that allow banks to hide problems.   Oh, and by the way, outlaw CDOs and other complex derivative positions for US banks.  They are speculations that have little to do with banking!

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