Recently, on the CurrencyFair blog, we looked at how the how the international banking system works:
The international banking system is an enigma. There are more than 30,000 different banks worldwide and they hold unbelievable amounts of assets. The top ten banks alone account for roughly 25 trillion U.S. dollars. Today, banking can seem very complex; but, originally, the idea was to make life simpler.In the article, we shared an excellent video which explained everything in a light and entertaining way (you can go back and watch the video here). Today we’re looking at the banking system from a different angle. We’re hearing from a former US banking regulator who reveals the best way to rob a bank. William Black is a former bank regulator who’s seen firsthand how banking systems can be used to commit fraud — and how “liar’s loans” and other tricky tactics led to the 2008 US banking crisis that threatened the international economy. In his engaging talk, Black, now an academic, reveals the best way to rob a bank — from the inside. A controversial perspective indeed. Recall this section? “First ingredient in the recipe: grow like crazy; second, by making or buying really crappy loans, but loans that are made at a very high interest rate or yield; three, while employing extreme leverage — that just means a lot of debt — compared to your equity; and four, while providing only trivial loss reserves against the inevitable losses. If you follow those four simple steps, and any bank can follow them, then you are mathematically guaranteed to have three things occur. The first thing is you will report record bank profits — not just high, record. Two, the CEO will immediately be made incredibly wealthy by modern executive compensation. And three, farther down the road, the bank will suffer catastrophic losses and will fail unless it is bailed out.” Time will tell if we are to see another global banking crisis.