How the US Legal System Affects the Industry
The United States legal system affects the banking industry in many ways. The global financial crisis of 2008 subjected the US banking sector to several legal regulations established after the intervention of government legislation. As such, the administration and operation of the banks have tremendously changed in the wake of these developments. The Housing and Economic Recovery Act of 2008 was a law passed in a bid to strengthen the US economy (Walker, Purves, & Blair, 2014). The act aimed to emphasize the use of community development programs and debt counseling as a way of preventing home foreclosures. As such, banking institutions amongst other mortgage lenders were required to register with a federal body known as the Nationwide Mortgage Licensing System. Therefore, this means that banks and other lending institutions are legally bound to perform their businesses with increased transparency towards their clients; failure to which a lawsuit can be filed against them. Secondly, through the Emergency Economic Stabilization Act of 2008, the federal government has accumulated more power to control the banks. The law authorizes the federal government to purchase and bail out banks that risk going bankrupt as a result of poor investments (Beatty & Liao, 2014). The law places such financial institutions under direct government scrutiny until they reclaim their solvency. On a positive note, the legal system has provided the banking industry with a privilege of confidentiality during court process where it enjoys confidentiality. As such, it cannot reveal its documents in a move aimed at preserving the confidence of the public.
Risks the Industry Undergoes During Traditional Litigation
When a bank is undergoing litigation, it can suffer immense risks during the process. One of the most significant risks it incurs is on the well-being of its reputation. A whistleblower can reveal controversial information that paints the bank in a bad light. Also, mass leakages of information during the litigation process can also be detrimental to the reputation of the banking company. Another essential disadvantage that banks usually suffer during litigation is finding the right witnesses to represent them. During court process, some banks are indefinitely closed meaning that workers might move on to new industries thus remaining with little incentive to drive them to engage with the ex-employers. In the wake of all these risks, managers have an essential role to play to avoid such risky eventualities. In performing risk management, the managers should guarantee the confidentiality of the processes and ensure the safety of their protected information which will assure that they have leverage during the litigation. Managers can ensure they perform basic things such as handling complaints to avoid unnecessary court processes and further ensuring that the banks operate within the bounds of the legal system.
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International Business Dispute and Application of ADR
One of the most significant disputes in the banking sector experienced in the US was referred to as the London Interbank Offered Rate (LIBOR) lawsuit. The case implicated 15 banks in the US including a Canadian bank accused of conspiring to boost their financial positions in the wake of the financial crisis by purportedly altering their interest rates. If the institutions are found guilty, then they could easily go bankrupt as a result of the triple-damage policy. In solving the situation, applying the alternative dispute resolution would likely lead to two options. The first option would be a class-action that would lead to potential sanctions and the application of the triple-damage policy that would see the banks lose astronomical amounts of money (Wang, 2014). An alternative way would be to use the non-mediated settlement which would lead to lesser damages on the banks because they would not have to do with the triple-damage policy. Since the non-mediated settlement is a private process, the likelihood that more claimants would come forward would be low. Therefore the ADR method such as the non-mediated settlement would offer valuable benefits for the institutions because they will evade punitive punishments by the bank and also the unpredictable jury (Wang, 2014).
References
Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics , 58 (2-3), 339-383.
Walker, G. A., Purves, R. L., & Blair, M. C. (Eds.). (2014). Financial services law . Oxford University Press.
Wang, M. (2014). Are alternative dispute resolution methods superior to litigation in resolving disputes in international commerce?. Arbitration International , 16 (2), 189-212.
