Will the Banks be Hit by a Wave of FX Manipulation Lawsuits?

An article in yesterday's Telegraph reports that UK farmers were hurt by the FX benchmark rigging scandal, as there is a 2.6 billion pound EU subsidy that first has to be converted from euros before paid to British farmers. An unclear reference in the article cites one day's manipulation that cost the farmers 16 million pounds in one year.

Regardless of the details here, what struck us at FinancialPests, was the wide range of potential suits with which the banks could be hit. Beyond all of the financial players, who we would expect to be more likely to file suits now that JPMorgan has settled one US suit, there may be many others as well. UK farmers would not have been on our radar screen as potential litigants(although no suit was mentioned in the article). Europe is, of course, less litigious than the US, and slower to file suits, but this reinforced to us that potentially, there may be a landslide of suits filed around the world during 2015.

Number26: the future of banking? Or just banking the way it ought to be?

From TechCrunch is a piece about the new European online bank Number26. I had no idea how difficult it is to open a bank account in Europe. Americans complain about our banking system but wow, needing to go to the post office to mail copies of your passport to prove your identity, that's something else.  I like the sound of Number26, which is currently in private Beta testing. Those readers in Europe, you should apply now. 

Lehmanizing Europe .... Incredible!

EU Banks May Get Asset-Backed Security Leeway in Liquidity Rules

    As we found in the Global Association of Risk Professional (GARP) news story above, the EU regulators are set to permit banks to count ABS bonds within liquidity requirements.

But this is precisely how Lehman Brothers failed in 2008 !!!

    Of course, there is a long story one may tell about the failure of Lehman.  See the exhaustive and authoritative report of the Examiner for the Lehman Bankruptcy.  There are many investigatory paths to follow in the analysis of complex institutions such as Lehman.

    But if one had to identify the dominant failure mechanism and to state in a simple yet accurate manner, here it is:

Lehman failed due to its stuffing its "liquidity pool" with (what it called) investment-grade ABS which, in crisis, were illiquid, mis-priced, and otherwise unacceptable as collateral to any lender that took the trouble to review the bonds.

See here one brief discussion of Lehman's Liquidity Pool "own goal."

Does the EU truly wish to replicate Lehman in Europe?!  Whether in time of Crisis or not, ABS bonds - regardless of credit rating - are not liquid!