New bank, old fraud

Plans have been announced to ‘rescue’ Banco Espirito Santo  by splitting it into a “good” and “bad” bank and loaning it €4.9bn from the European bailout fund in an operation that will leave the liabilities with the Portuguese people. Rui Tavares of the Left Bloc argues it doesn’t have to be this way

Portugal has witnessed a rare event. This weekend, the Bank of Portugal tried to convince the country – and the financial world – of the effectivness of a program to resolve the problems of Banco Espirito Santo (BES). I use “try to convince” without any ulterior motive: trust being the key element in the relationship between the clients and the banking system, the job of a central banker is always one of persuasion.

As such, only time will tell if the effort of persuasion today worked or not. If in the coming days the depositors of the former Banco Espírito Santo, now christened Novo Banco (New Bank), are not alarmed by new skeletons in the closet, it may be that the central bank will have overcome the first test in this high risk exercise. The rest is much more complicated and it is a task for the government; can it fullfil its promise that the BES will not contaminate public debt and not harm Portuguese taxpayers? The division between the BES into a “bad bank” and “good bank”, with all the complexities and uncertainties that it conceals, makes this all very doubtful.

The governor of the Bank of Portugal, Carlos Costa, was forced to admit that the management of Banco Espírito Santo was not very Catholic: in recent times, and probably well before that, the bank’s
management, and the family group he formed part of, carried out a series of frauds and concealments. It is clear from what Carlos Costa said that criminal actions must be investigated.

Despite the name “good bank”, Novo Banco, is a naive propaganda attempt to make people believe that we are entering a period in which the slate will be wiped clean. But the fraud of Banco Espírito Santo is nothing new.

And that’s where there was something even more extraordinary in that extraordinary moment. Carlos Costa confessed failings by the regulatory authorities with respect to financial capitalism as it operates today.

The Banco Espírito Santo fraud is not anything new: basically it depends on the use of hidden jurisdictions, holding companies in tax havens, and a carousel of transactions between all of them. The system remains as opaque as ever. Nothing has changed. And the central bank governor confirmed that things only erupt when the bank is forced to lift a corner of the veil. The rot in the BES empire is still to be discovered.

Put that way, Carlos Costa has said no more than all the great critics of contemporary capitalism. It’s just that he said it less clearly. The old vices continue intact under the “new banks”.

There are ways to finally end with this. Separate investment banks from traditional banks. Compel the European banks to reveal everything they do in their subsidiaries. Regulate, at European level,
as the US has done with its Foreign Account Tax Compliance Act (FATCA) law, which requires all taxpayers, companies or individuals, to declare the assets they hold outside their home jurisdiction. And finally, create a special investigation unit for financial and economic crime, based within the European Central Bank or Europol.

All this can be achieved, but not by the governments we have today.

O Publico

Translation by Revolting Europe