Introduction

Patrick McConnell

Since 2011, over US$200 billion of losses have been incurred by the largest banks in the world as a result of regulatory fines levied, legal settlements and provisions taken for operational risk events. These events, which are described in detail in Part 2 of this book and also summarised in Chapter 3, include manipulation of the London Interbank Offered Rate (Libor) and FX benchmarks, mis-selling of financial products, such as payment protection insurance (PPI), and the frauds and due diligence failures that precipitated the global financial crisis (GFC). This is an enormous sum of money, which dwarfs all other losses attributable to operational risks under the Basel II regulations. This book sets out to explain why misbehaviour by financial institutions around the world created these losses, and to suggest mechanisms for addressing how such losses may be minimised in the future.

The GFC was not a simple event that can be attributed to a single cause. If it were so, politicians and financial regulators would not be finding it so difficult to come to terms with its consequences. In fact, the financial crisis was a complex phenomenon that appears to have had numerous causes, and