bank

A Beginner's Guide to Bank Failures

By Ahjamu Umi

Republished from Hood Communist.

According to a February 2023 Federal Deposit and Insurance Corporation (FDIC) audit, 563 U.S. banks have failed and/or come under regulatory authority since 2021. Here in California, U.S., the latest casualty has been the Silicon Valley Bank (SVB). This latest rash of bank failures, especially within the software start up SVB, have alarmed apologists for capitalism all over the world. With this piece, we are hopeful we can bring some fundamental understanding of “bank failure” and what’s happening for everyday working people.

First, it should be explained that the Federal Deposit Insurance Corporation (FDIC) is an institution of the U.S. federal government. It exists to provide some level of guarantees against bank failure. They do this by regulating banks, auditing them, and insuring bank deposits for up to $250,000 USD (aggregate deposits per institution). 

What Does This Mean?

Let’s say for example, you have $275,000 in liquid asset deposits in any U.S. bank. If that bank fails and/or comes under FDIC jurisdiction, your deposits for up to $250,000 are insured by the federal government, meaning the government should issue you a check for that amount. The remaining $25.000 in deposits that you had in the failed bank makes you now a creditor for that bank. This means they owe you that money, just as you owe your credit card companies, car finance institutions, etc.

Of course, like any creditor/borrower relationship, your ability to get repayment has no guarantee. The bank can come under bankruptcy protection, etc., which means you would lose all or most of that $25,000 in this hypothetical example. But that is a fundamental definition of the role of the FDIC. It’s worth noting that credit unions are governed by the National Credit Union Administration (NCUA), which serves the same general purpose for credit unions that the FDIC serves for banks, including insuring deposits for up to an aggregate $250,000 per customer/member per institution.

It’s important to also note that the FDIC was formed in 1933 as a result of the Banking Act legislation. This happened four years after the great stock market crash of 1929 which means the FDIC was created as a vehicle to encourage renewed trust in the U.S. banking system. It’s that question of trust that provides the basis for creating a simple way of analyzing and understanding what is happening with banks within the capitalist system and how to interpret these bank failures.

The Origins of the Banking System 

Contrary to popular opinion, the international banking system, and the concept of capital as the foundation of that system, did not start from the creative and intellectual genius of the fathers of the capitalist system. Instead, the start up capital for the international banking system came directly from proceeds produced from the enslavement of kidnapped Africans. The labor of their work was converted to revenues that were invested to initiate the banking system and the capital it would rely on to facilitate its existence. Every large international bank today from Chase to Barclays owes its origins to this nefarious beginning. If we understand and accept this irrefutable history, it should be easy to understand that the capitalist banking system, from its beginning, has been about exploitation and its that reality that paves the way for greater understanding of what’s happening today.

How Banks Work 

Banks operate by taking your deposits, no matter how large or small, and investing those deposits to generate capital. The more money you have to deposit, the greater incentives the banks provide you for doing so, for example: no fees, more services, slightly higher dividends (returns on your deposits), etc. Whether you have $250,000 deposited in a bank, or $25, the process works the same. Your money is used by the bank to invest in any number of financial projects designed to provide a positive return for the bank on your deposit. For the overwhelming majority of us, this is done with little to no return to you. 

Let’s say you have a job where your paycheck is directly deposited into your bank account every two weeks, say $2500 twice per month, and from each check you have $300 automatically transferred into your savings account. That means you are saving $600 USD per month. You will receive next to nothing for that money sitting and growing in that bank, but the bank will use your deposits and invest them in any number of profit generating projects— primarily exploitative projects around the world because those types of investments are the best suited to produce the highest return on the dollar. Think exploitative companies that steal resources from Africa for example. Companies like Dutch Royal Shell (Shell Oil) rob Nigeria’s Niger Delta blind drilling for oil. There is no oversight and the workers are paid peanuts. As a result, Shell’s profits continue to break records. Well, a bank will invest in Shell’s stocks and profit from Shell’s theft of resources from Nigeria. As Shell’s profits grow, the bank’s profits grow. And, by profits we mean capital i.e. money the bank earns that serves the sole and specific purpose of being reinvested for additional profits.

That’s why when the capitalist commentators talk about most U.S. banks being “well capitalized” they are actually telling the truth. These banks have millions of dollars – dollars they made investing your deposits – sitting around ready for them to invest to make even greater profits. Meanwhile, you get slim to nothing from them using your money and you will even be penalized if you come upon rough times and cannot maintain the minimum requirements they demand to keep your account(s) going. They have to make those demands of you because if your money isn’t available to them, they have nothing to invest and profit off of it. If you think about it, the banking model is basically the same as someone coming to you, taking your paycheck when you cash it, using your money to make additional money from it, and just returning to you what they took from you in the first place. And, if they are unable to get a return on your paycheck, they are usually supported by the government in their financial challenges while you are left to figure out how to proceed on your own with no help or support.

Silicon Valley Bank & Banks Playing With Your Money

That’s still not even the full story. Besides the example of investing in the exploitative practices of Shell and other criminal multi-national exploitative capitalist corporations, the banks invest heavily into shady and high risk ventures like securities from the secondary market. These types of investments are often bundled high risk mortgage loans, meaning loans provided to buyers who’s repayment potential is questionable, but who agreed to repayment terms at much higher, and profitable, interest rates. These types of unscrupulous business practices by banks have resulted in devastating consequences, such as the 2008 mortgage crash in the U.S. where everyday consumers were left houseless while the banks were bailed out by the 2009 multi-billion dollar gangster deal – compliments of the Obama Administration – one of the most lucrative welfare schemes in human history, recently eclipsed by the $2.2 trillion CARES Act of 2020. As it relates to banks like the Silicon Valley Bank in Santa Clara, California, U.S., the same principles apply. This bank was the home for software startup companies who invested incredible sums of money in highly questionable ventures for most of its 40 year existence. As has been alluded to, this has always been the program of capitalist banks, but in recent years we are seeing the limitations of this strategy much easier because the decline of capitalism has created conditions where the once assumed stability of capitalist banks is now more and more in question. 

Let the Banks Fall While We Rise  

This is a reality that will continue to create hardship for millions of people worldwide, but in the long run, this also has the potential to represent a new day for the masses of humanity where capital no longer controls the narrative everywhere on earth. There are a lot of variables to unpack in order to create that reality, but for now, the best thing all of us can do is engage every effort that we can to educate our communities about the role of banking institutions to profit from our continued exploitation and how the system is set up to support their existence, while making us the main source of accountability for ourselves and their greedy exploitative practices. This problem, like every other problem we face, cannot be resolved through any level of individual initiative. It cannot be resolved by any other approach to stabilizing the capitalist system. This problem is a reflection of the exploitative basis from which capitalism developed hundreds of years ago and it’s simply a manifestation that this profit over people model of operation is existing in its final days. This may be a scary thought to many, but at the end of the day, Kwame Ture was 100% correct when he said that “if we don’t struggle for revolution, we suffer so why don’t we organize and take the suffering as a pathway to our liberation and forward progress instead of just continuing to suffer with no end in sight?”  Capitalist banks are viewed as vehicles to provide us with houses, cars, loans, etc. What they are in reality is a criminal operation that is 100% supported by the U.S. government which is nothing more than a mouthpiece for international capitalism. The sooner we can do the necessary work to create broader consciousness around this, the sooner we can reclaim the resources that rightfully belong, not to a small and criminal elite, but  to the masses of people on earth. 

Ahjamu Umi is revolutionary organizer with the All African People's Revolutionary Party, adviser, and liberation literature author.

Bank Crimes Pay: Under the Thumb of the Global Financial Mafiocracy

By Andrew Gavin Marshall

On Nov. 13, the United Kingdom's Serious Fraud Office (SFO) announced it was charging 10 individual bankers, working for two separate banks, Deutsche Bank and Barclays, with fraud over their rigging of the Euribor rates. The latest announcement shines the spotlight once again on the scandals and criminal behavior that have come to define the world of global banking.

To date, only a handful of the world's largest banks have been repeatedly investigated, charged, fined or settled in relation to a succession of large financial scams, starting with mortgage fraud and the Libor scandal in 2012, the Euribor scandal and the Forex (foreign exchange) rate rigging. At the heart of these scandals, which involve the manipulation of interest rates on trillions of dollars in transactions, lie a handful of banks that collectively form a cartel in control of global financial markets - and the source of worldwide economic and financial crises.

Banks such as HSBC, JPMorgan Chase, Barclays, Bank of America, Citigroup, Deutsche Bank, Royal Bank of Scotland and UBS anchor the global financial power we have come to recognize as fraud. The two, after all, are not mutually exclusive. In more explicit terms, this cartel of banks functions as a type of global financial Mafia, manipulating markets and defrauding investors, consumers and countries while demanding their pound of flesh in the form of interest payments. The banks force nations to impose austerity measures and structural reforms under the threat of cutting off funding; meanwhile they launder drug money for other cartels and organized crime syndicates.

Call them the global Mafiocracy.

In May, six major global banks were fined nearly $6 billion for manipulation of the foreign exchange market, which handles over $5 trillion in daily transactions. Four of the six banks pleaded guilty to charges of "conspiring to manipulate the price of U.S. dollars and euros exchanged." Those banks were Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland, while two additional banks, UBS and Bank of America, were fined but did not plead guilty to the specific charges. Forex traders at Citigroup, JPMorgan Chase and other banks conspired to manipulate currency prices through chat room groups they established, where they arrogantly used names like "The Mafia" and "The Cartel."

The FBI said the investigations and charges against the big banks revealed criminal behavior "on a massive scale." The British bank Barclays paid the largest individual fine at around $2.3 billion. But as one trader at the bank wrote in a chat room conversation back in 2010, "If you aint cheating, you aint trying." The total fines, while numerically large, were but a small fraction of the overall market capitalization of each bank - though the fine on Barclays amounted to some 3.4% of the bank's market capitalization, the highest percentage by far among the group.

Despite the criminal conspiracy charges covering the years 2007 through 2013, the banks and their top officials continue to lay the blame squarely at the feet of individual traders. Axel Weber, the former president of the German Bundesbank (the central bank of Germany), who is now chairman of Switzerland's largest bank, UBS, commented that "the conduct of a small number of employees was unacceptable and we have taken appropriate disciplinary actions."

Looking at the larger scale of bank fines and fraud in the roughly eight years since the global financial crisis, the numbers increase substantially. In addition to a 2012 settlement for mortgage-related fraud in the U.S. housing market, which amounted to some $25 billion, several large banks paid individual fines related to mortgage and foreclosure fraud - including a $16 billion fine for Bank of America, and $13 billion for JPMorgan Chase. Added to these are fines related to the rigging of the Libor rate (the interest rate at which banks lend to each other) and the Forex rigging, as well as money laundering, violating sanctions, manipulating the price of gold, manipulating the U.S. electricity market and assisting tax evasion, among other crimes.

According to a research paper published in June, the total cost of litigation (fines, penalties, settlements, etc.) paid by 16 major global banks since 2010 has reached more than $300 billion. Bank of America paid the most, amounting to more than $66 billion, followed by JPMorgan Chase, Lloyds, Citigroup, Barclays, RBS, Deutsche Bank, HSBC, BNP Paribas, Santander, Goldman Sachs, Credit Suisse, UBS, National Australia Bank, Standard Chartered and Société Générale.

Virtually all of these banks also appear on a list of data, compiled through 2007, revealing them to be among the most interconnected and powerful financial institutions in the world. This core group of corporations forms part of a network of 147 financial institutions that Swiss scientists refer to as the "super-entity," which, through their various shareholdings, collectively control and own each other and roughly 40% of the world's 43,000 largest transnational corporations.

In other words, the big banks - along with large insurance companies and asset management firms - do not simply act as a cartel in terms of engaging in criminal activities, but they form a functionally interdependent network of global financial and corporate control. Further, the banks work together in various industry associations and lobbying groups where they officially represent their collective interests.

The largest European banks and financial institutions are represented by the European Financial Services Round Table (EFR), whose membership consists of the CEOs or Chairmen of roughly 25 of the top financial institutions on the continent, including Deutsche Bank, AXA, HSBC, Allianz, RBS, ING, Barclays, BNP Paribas, UBS, and Credit Suisse, among others.

In the United States, the Financial Services Forum (FSF) represents the largest American along with some European banks and financial institutions. The Forum's membership consists of less than 20 executives, including the CEOs or Chairmen of such firms as Bank of America, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Citigroup, UBS, HSBC, AIG, Bank of New York Mellon, State Street Corporation, Deutsche Bank and Wells Fargo, among others.

And on a truly global scale, there is the Institute of International Finance (IIF), the premier global association representing the financial industry, with a membership of nearly 500 different institutions from more than 70 countries around the world, including banks, insurance companies, asset management firms, sovereign wealth funds, central banks, credit ratings agencies, hedge funds and development banks.

In addition to these various groups and associations, many of the same large banks and their top executives also serve as members, leaders or participants in much more secretive groups and forums - for example, the International Monetary Conference (IMC), a yearly meeting of hundreds of the world's top bankers hosted by the American Bankers Association, which invites selected politicians, central bankers and finance ministers to attend their off-the-record discussions. In addition, there is the Institut International d'Etudes Bancaires (International Institute of Banking Studies), or IIEB, which brings together the top officials from dozens of Europe's major financial institutions for discussions with central bankers, presidents and prime ministers in "closed sessions" with virtually no coverage in the media.

These financial institutions are major owners of government debt, which gives them even greater leverage over the policies and priorities of governments. Exercising this power, they typically demand the same thing: austerity measures and "structural reforms" designed to advance a neoliberal market economy that ultimately benefits those same banks and corporations. The banks in turn create the very crises that require governments to bail them out, racking up large debts that banks turn into further crises, pressuring economic reforms in return for further loans. The cycle of crisis and control continues, and all the while, the big banks and financial institutions engage in criminal conspiracies, fraud, manipulation and money-laundering on a massive scale, including acting as the financial services arm of the world's largest drug cartels and terrorists organizations.

Welcome to the world governed by the global financial Mafiocracy - because if you're not concerned, you're not paying attention.