How much is dependent on bank operation in the world as evidenced by the 2008 financial problems. Authorities have since been given new forces to retain some of the biggest organizations on a much shorter rope to stamp out chance, greed, and corruption.
But this approach has n’t worked everywhere. A woman in Vietnam was given the death penalty on April 11, 2024, after obtaining US$ 44 billion in false money from one of Vietnam’s largest businesses.
By avoiding a Taiwanese law that forbids anyone from owning more than 5 % of a company’s stock, Truong My Lan took the money, the majority of which is improbable to be recovered, out of Saigon Commercial Bank (SCB). She eventually became the owner of more than 90 % of the institution by using various means, including lots of shell companies.
Meanwhile, the loans that she took out ( worth just under 10 % of Vietnam’s GDP for 2024 ) made up 93 % of the bank’s entire lending portfolio. She frequently retracted large sums of money from her room.
Lan is expected to charm the judge’s ruling. However, this extraordinary situation of fraud, which uses deposits to bank loans, highlights the natural vulnerabilities of banks. Put simply, for every £10 ($ 12.45 ) deposited, a bank could lend up to £9 ($ 11.22 ) to fund mortgages or corporate loans, keeping just £1 ($ 1.25 ) as a reserve to allow for withdrawals.
However, the bank might not have enough cash in reserve to cover it if depositors demand a sizable amount of cash in the event that they wish to remove it at all. After Lan’s imprisonment in 2022, SCB was subject to a bank robbery, which meant the bank has been in state power ever since.
To minimize this kind of scenario, banks in most places are properly regulated. Many people are now required to hold more capital and cash to withstand anxiety, as has the global financial crisis.
The magnitude of the fraud and corruption at SCB highlights the disastrous effects a crooked atmosphere can have on the financial sector. Various studies have shown that problem can negatively impact bank stability, lower lending, and raise the risk of bank crises.
The SCB test was a significant component of the so-called” Blazing Furnace” campaign, which targeted politicians and business leaders in an effort to remove corruption from the Asian government and economy, for a long time.
But it may not be that easy.
There is a claim that corruption you really have social benefits in some circumstances, such as helping to “grease the wheels” of a sluggish economy. Some claim that the Vietnamese economy has experienced substantial economic growth in recent years ( the sector has tripled in size since 2010 ) mainly as a result of high levels of corruption. What happened with SCB is very common ( on a smaller size ) in the country.
This theory is supported by research that suggests that corruption can actually play a supporting role in society rather than always being financially destructive.
The theory is that corruption can often speed things along while avoiding bureaucracy’s inadequate restrictions in places with slow-moving administration and limitless red tape.
Corrupting forces
In some circumstances, problem can lead to more efficient business and institution functioning. Jobs get started, careers are created, agreements are awarded. Things get done.
Of course, that’s not to say there should be more corruption; it only serves as an illustration that its effects can be more complex than we might consider. And we need to keep in mind that corruption may also occur within the regulatory system.
Although corruption-focused financial regulation may be successful, it can lead to fraud when the authorities have too much control over their actions. According to studies, it opens up opportunities to be paid for government contracts, subsidies, and governmental favors.
Even so, it has been claimed that laws put in place after the US’s economic crisis, specifically designed to stop another issue, increased the risk of fraud.
However, global cooperation is possible. The Basel Committee on Banking Supervision, which adopts regulatory recommendations for the banking industry, is comprised of developed markets like the UK, the US, and the EU. By establishing shared requirements, monitoring each other’s processes, and exchanging information, this protects the member states and their citizens from fraud.
In the west, therefore, an extreme event like the one we saw in Vietnam is unlikely to occur. However, constant vigilance is necessary because even the policies and regulations put in place to keep high standards are exposed to the problem they are intended to avoid.
George Kladakis is Lecturer in Finance, University of St Andrews
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