10 Most Outrageous Bank Scandals

The financial world has a love-hate relationship with banks throughout the globe. On the one hand, they form the foundation of economies. On the other hand, they abuse that power, are the most likely entities to destroy the financial system, and are far more concerned about making themselves rich than responsibly caring for our money.

Now, there are tons of cases in history when banks have really messed up, destroying lives and their countries’ stabilities. But we don’t expect them to scam us. Surely we can rely on them to take our money with legitimate ruses? Actually, as these 10 scandals show, banks have committed some of the most outrageous scams and cons in history. A similar UK-facing list can be found here.

10 – Bear Stearns mortgages


Getting a mortgage is anxiety-inducing for everyone, but that’s on our own account. We’re worried about the commitment of paying it back for the indefinite future. But Bear Stearns (and others) gave us more reason to worry in 2008. They committed mortgage fraud on an immense scale, by pledging the same mortgages to multiple buyers.

Bear Stearns went down in the financial crisis, having played a significant part in causing it, but as yet, no one has been brought to account by the law.

09 – The Wall Street Mafia

The Wall Street
The Wall Street – By Jim in Times Square (Flickr) [CC BY 2.0], via Wikimedia Commons
One of the biggest financial corruption cases went down in 2012, although you probably did not hear about it. United States of America v. Carollo, Goldberg and Grimm went under the radar because, let’s be honest, who wants to watch a trial about financial fraud? Three men were at the heart of it, but it involved some of the biggest banks on Wall Street as well, including JPMorgan Chase, Bank of America, UBS, Lehman Brothers, and the above mentioned Bear Stearns. Their crime rigging public bids on municipal bonds, lowering the interest rates towns earned on these investments. They basically stole from schools, hospitals and libraries. Pretty bad, right? Well, the idea very much resembles mafia activity from the 90s, which should make us think again about trusting Wall Street.

Carollo, Goldberg and Grimm were all convicted of fraud in 2012, but the banks faced no sanctions.

08 – Morgan Stanley inflate ratings

Morgan Stanley Building
Morgan Stanley Building – By Alex Proimos from Sydney, Australia (Morgan Stanley Headquarters) [CC BY 2.0], via Wikimedia Commons
In 2012, unsealed documents exposed that Morgan Stanley forced rating agencies to inflate ratings. Bloomberg wrote that “Morgan Stanley successfully pressured Standard & Poor’s and Moody’s Investors Service Inc. to give erroneous investment-grade ratings in 2006 to $23 billion worth of notes backed by subprime mortgages”.

In other words, they got supposedly independent agencies to inflate ratings to their benefit, when they should, in fact, have remained the same.

07 – Libor scandal

Barclays Global Investors
Barclays Global Investors – By BrokenSphere (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons
The London Interbank Offered Rate (Libor) is an average interest rate based on data submitted by banks around the globe. In 2012, criminal settlements revealed by Barclays Bank showed that banks were inflating or deflating their rates, and trading against them. This negatively activity affected mortgages, student loans, and other debt that could cripple everyday people.

The legal costs and fines related to the Libor scandal has driven down banks’ profitability, and has been a catalyst for further mistrust of the banking sector.

06 – HSBC’s neglect funds terrorists

HSBC – Cheqbo at the English language Wikipedia [GFDL or CC-BY-SA-3.0], via Wikimedia Commons
HSBC Holdings, Europe’s largest bank, took a few chances when they offered services to high-risk international affiliates. By doing so, they inadvertently exposed the U.S. to money laundering by terrorists and drug lords. In this case, they did not intentionally steal money from their customers, at least. But, their actions show a willingness to put their clients’ livelihoods risk.

HSBC admitted to negligence but have defended themselves against claims of greater collusion with Mexican drug cartels.

05 – Morgan Stanley charge fake storage fees

Morgan Stanley
Morgan Stanley – via flickr by Arabani

And back to Morgan Stanley. None of us expect our banks to hold all of our assets. When we invest in precious metals, we’re not doing so because we want nice jewellery. But Morgan Stanley claimed that their clients would own their precious metals in full, and the company would store them. They went ahead and charged storage fees for these metals. Problem is, the storage did not actually exist. They had simply found a clever way to defraud clients of their money.

Morgan Stanley ultimately paid out $4.4 million dollars to settle a class-action lawsuit.

04 – Bank of America defrauds Home Affordable Modification Program

Bank of America
Bank of America – Coolcaesar at the English language Wikipedia [GFDL or CC-BY-SA-3.0], via Wikimedia Commons
The Home Affordable Modification Program (HAMP) aimed to help American homeowners who were facing foreclosure. The Bank of America (BoA) took part in this program to help their own clients. Except that they actively prevented homeowners from receiving mortgage-loan modifications under the program. That didn’t stop them from receiving (or stealing) financial incentives for participating in HAMP.

In 2012, a whistleblower revealed the sordid details, and in 2013, homeowners who had been affected filed a class action. Unfortunately, their suit was not allowed to proceed, due to restrictions on class action suits, rather than a lack of evidence.

03 – Foreign Exchange Manipulation

Foreign exchange
Foreign exchange – By epSos.de [CC BY 2.0], via Wikimedia Commons
In May 2015, 5 major banks were fined more than $5.5 billion after pleading guilty to manipulating the foreign exchange market. In August, 9 banks agreed to a $2 billion settlement with investors for foreign exchange manipulation. Banks have a major impact on currency prices, and legal experts have warned that many more banks are likely to be charged with similar crimes.

The scandal is estimated to have caused a loss of £7.5 billion a year for British pensioners alone.

02 – Lloyds Banking Group’s useless insurance

Lloyds Bank
Lloyds Bank – By Oosoom at en.wikipedia (Transferred from en.wikipedia) [GFDL or CC BY-SA 3.0], from Wikimedia Commons
Lloyds Banking Group compensated £3.2 billion in 2011 to customers who were mis-sold payment protection insurance (PPI). The insurance policies are supposed to pay back debt in the case that a customer is no longer able to work. But, while banks aggressively sold PPI to customers, most claimants were receiving just 15% of their PPI. This made it more profitable for the banks than car or house insurance.

The level of compensation paid out has already reached $30.3 billion, and probably won’t end until 2018.

01 – Wells Fargo Bank charges higher prices for non-whites

Wells Fargo Bank
Wells Fargo Bank – By Xnatedawgx (Own work) [CC BY-SA 3.0 or GFDL], via Wikimedia Commons
In 2012, Wells Fargo agreed to pay a $175 million settlement for what amounted to institutional racism. Investigations found 34 000 instances in which African Americans and Hispanics paid higher fees on mortgages than Caucasians with equivalent credit profiles. While we would have hoped this type of discrimination would have stayed in the 50s, this unfortunately highlights the extent of institutional racism. It’s also another example of big banks taking advantage of their clients.