At first sight, HSBC’s (HSBA.L), (0005.HK) 57 million pound fine from the UK’s Prudential Regulation Authority looks a tad excessive. The $150 billion bank has received the second-biggest fine in the PRA’s history for mislabelling some of its deposits, in a goof that its overseer says was unintentional and didn’t harm any customers. In fact, HSBC’s penalty is both deserved and disturbing.
The deserved bit is that HSBC managed to misreport 112 billion pounds of deposits as being ineligible for cover from the UK Financial Services Compensation Scheme, which repays depositors the first 85,000 pounds if their bank implodes. That mistake is not only massive, but it also benefitted HSBC by reducing how much it had to pay out to the FSCS via an annual levy that all banks pay.
The reason why the PRA has handed out such a chunky fine, however, is that it’s rather disturbing when a bank with $3 trillion of assets can’t get this sort of thing right. Had HSBC gone bust in the recent past, the UK authorities would have been trying to resolve it armed with markedly wrong data. It’s the sort of mistake that requires the miscreant to be made an example of, and might also make regulators wonder if banks should be so big. (By George Hay)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
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