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> It's not in the best interest of the banks to monitor their internals too closely.

So keep raising the fines. make them proportional to the banks turnover, or their perceived size if it appears that they are trying to disguise profits. The leadership of the banks need to follow the rules too, and make sure that the organisation follows those same rules. Maybe they should be held accountable when that doesn't happen.

As we found out when Health & Safety legislation was enacted which did this, it turns out that when you start holding people personally accountable for their actions (or lack of), then changes start to happen in the culture of the workplace. I walked around a factory recently and they take the health and safety of themselves, their colleagues and their visitors very seriously.

Seems like an effective approach to any fines would be to sum up the estimated profits they made, add in the estimated cost to innocent parties, then multiply it by some number.

Of course that relies on someone actually being held accountable for a change...

Alas, I don't think this is going to happen, because financial accidents are rarely gory so it's tricky to mobilize the masses. If someone gets pounded to pulp by a power hammer, that will get plenty of visceral coverage and politicians will latch on to score easy cookie points for being seen "committing good deeds".

Finance is too abstract for this to work. "Big Bank Co ABC defrauding other institutional clients by XYZ billions" is so far removed from common folk that they can't relate to it. Some politicians will make some token moves, which (as described in another comment of mine) will just end up funneling some money into another special interest group and that's it.

I wish people more readily accepted they human lives have a monetary value of some degree. If you cause a lot of monetary damages to a large number of people then that's going to lead to a cost in human lives. This way people might more readily accept what impact this kind of defrauding has.

> The people manning the prop desks in these institutions

The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with few exceptions). The big banks have been actively discouraging it as well, changing comp structures to avoid rewarding prop trading.

> trading happens directly between traders and never crosses exchange boundaries

All these trades still need to be cleared, no? There's a structure to markets that you're papering over here.

> It's not in the best interest of the banks to monitor their internals too closely.

You may think this, but traders at banks are subject to tons of surveillance. Banks take lots of measures now to catch rogue traders even if it's just because they don't want dirty laundry being aired publicly.

> The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with few exceptions).

Ok, replace prop trading with a fund trading OTC products that the bank runs.

> All these trades still need to be cleared, no? There's a structure to markets that you're papering over here.

They do, and as I wrote in a bit that you didn't quote, it's largely irrelevant because it's not that difficult to hide collusion. Heck, the guys fixing LIBOR did it successfully even with all the controls you claim the banks put in place.

> You may think this, but traders at banks are subject to tons of surveillance.

Yes, there is tons of surveillance. There is (in my experience) fairly little actually effective surveillance. For once, surveillance is never an interesting task. I consider it the same as guard duty. 99% of the time, nothing happens. Humans are not good at catching unexpected outliers. So you automate a lot of the checks, but these either produce too many false positives and thus bury the true problems in the noise, or they can be circumvented.

As I wrote, I consider the root cause to be a problem of incentives and conflicts of interest. No amount of patching with egregious audit and or lawyering will fix this. I consider statements like "but look at all the checks we already do" theatrics.

Look I'm in the industry. I have to complete 5 different training and educational courses every month, spanning from market abuse, to insider trading to fraud. Nobody takes this crap seriously and it is broadly considered a complete and utter waste of time. We have to fulfill a bazillion reporting obligations, but all of it is just a thin veneer of compliance to tick checkboxes. Every year, some chums from KPMG/PwC/<insert alphabet soup> come around, check that there are no obvious problems and rubberstamp everything. They find some token things which get reported and rectified so it looks like they actually do something.

I have friends who work in compliance/audit departments, and even those who want to do their work properly, run into problems because it's tricky to put heat on any group that is making money.

Most people I encounter in the industry are actually honest and hard working. Even though the checks are more or less easily circumvented, the majority of people choose not to do obviously illegal things. But to claim that the current setup is somehow successful at preventing shenanigans is dishonest.

> Look I'm in the industry.

So you’re the only person on HN who works in finance?

Volcker provides exemptions for trading in government bonds.

> The Volcker Rule (part of Dodd-Frank) prohibits prop trading at banks (with few exceptions). The big banks have been actively discouraging it as well, changing comp structures to avoid rewarding prop trading.

It's not prop trading...I'm just macro hedging which is completely fine

Checkbox-ticking folks will be glad to sell you a quasi-legal tax avoidance scheme: powered by PwC, EY, D(&T), KPMG. Recommended by MBB.

Absolutely. The bank - advisor (PwC, EY, etc...) relationship is just as riddled with conflicts of interest. It is in the interest of the advisory firm to find a "creative" solution for their clients (the banks). Otherwise the bank would go to a slightly less scrupulous institution. The theatrics apply again, the bank gets to claim to have been audited by a prestigious consultancy, the consultancy gets paid, the authorities get to shovel the problem under the carpet and the specific individuals in the authorities get a cushy consultancy job after their public service. It is not in the interest of any of these players to change anything, so it is not going to change.

> This means that cliques along the lines of "I'll scratch your back if you'll scratch mine" form naturally.

Problem I have with Econ 101 BS is this. Different industry, in the city I grew up in the four large electrical contractors get busted every 10-15 years for bid rigging city and county contracts. They pay fines, no one goes to jail. I feel like this sort of stuff also goes on with private bids, but it never gets called out.