Financial Fiascos: 'The Short-Memory Syndrome?'

Abstract

This paper reviews selected major financial scandals. The analysis covers international cases like BCCI, Credit Lyonnais Bank, Barrings Bank, Daiwa and Sumitomo, and local cases like scandals at Bank Rakyat, Bumiputra Malaysia Finance, Pan Electric Industries, Deposit Taking Cooperatives, Bank Negara and Perwaja. A review suggests that since these events happened in the best of financial systems, the fault lies in weak governance. Non-prudent and unethical management practices, and poor internal mechanisms to effectively identify problems at early stage are commonly cited excuses for the weak governance in almost all the reports on these fiascos. Even the suggestions to prevent similar scandals in the future are so ordinary such as good corporate governance practices, effective internal audit and regulatory functions, careful reviews on rules and regulations with regard to financial scandals, and improvement of government policy to deal with the perpetrators. It is no wonder that the market yawns and don’t seems to bother much about the recommendations and keep repeating the same mistakes in a different mode and as a result financial fiascos have becomes so predictable every decade.

Keywords: Financial Fiascos, Corporate Governance, Integrity, Regulator

JEL Classification: G30, M14, M40