China caught up with an illegal foreign-exchange and money-laundering network, described as an underground bank. The network is said to have cleared more than $64 billion in transactions. Official sources say at least 370 people have been arrested or charged, and thousands of accounts have been closed. This “bank” must represent a significant fraction of illicit capital outflows, so closing it should give China better control of its national money flows. The central bank has advised offshore banks to stop issuing bond repos for bonds in China, instruments it believes are mainly used to circumvent currency controls.
Bank of Cyprus has partly recovered from that country’s financial crisis but says it will need to see further improvements in its loan portfolio before it can start issuing bonds again. The loan portfolio hit bottom about a year ago and has started to improve.
Greece yesterday approved a bank recapitalization program. As a result some Greek bank stocks dropped in value and now trade at less than 1 percent of their pre-crisis peak values. The low stock value reflects the expectation that stockholder shares will be diluted or eliminated with the issuance of new shares.
A government investigation into the collapse of Scotland’s HBOS may result in a few more executives being barred from working in banking. Other regulators will take up that investigation in January.
London bank RBS is eliminating some bonuses that it believes drove sales representatives to sell inappropriate insurance-like services to customers that didn’t benefit from having them. Bank employees routinely mischaracterized the services in order to sell to more customers, a scandal that has embroiled the U.K. banking sector over the last five years. The sales staff will get a 5 percent raise to replace the bonus plan. RBS has also said it will stop using teaser rates on credit cards and consumer loans.