The Panama Papers have caused quite an uproar and many questions have been raised about Nordea Bank’s role as an intermediary between wealthy clients and Mossack Fonseca.

Nordea executives keep saying that the bank has not violated any laws or regulations. That might be true, but it's obvious they regret Nordea’s dealings with Mossack Fonseca, considering the massive amounts of anger and bad publicity they now face.

What’s also obvious is that not all of Nordea’s 32,300 employees are dirty co-conspirators in tax evasion. I bet that 99% of Nordea’s employees had never even heard about Mossack Fonseca before the Panama Pandemonium broke out. If the shady dealings were done solely within the Private Banking / Wealth Management part of the bank, we’re talking about a fairly small number of employees.  

The same goes for most of the notorious banking scandals throughout history. Often a relatively small number of inglorious bankers manage to cause considerable damage to the entire banking industry.

This was the case in the HSBC Swiss Private Bank tax evasion scandal, in the Libor rigging scandal, and in the FX scandal (where Citigroup, JPMorgan Chase & Co, Barclays, and Royal Bank of Scotland pledged guilty). Don't forget the UBS tax evasion controversy either.

Therefore, the question we should ask the entire banking industry is: Why the hell is it so difficult for you to get rid of those rotten apples?

One possible answer is that they are difficult to detect, because greed and moral hazard has turned them into sneaky bastards. Moral hazard occurs when a person takes more risks because someone else bears the cost of those risks.

Why is there so much greed and reckless risk-taking in the banking industry? Because the incentive programs and bonus schemes are so outrageous.

Why do banks have crazy incentive programs? Because whenever you manage large amounts of money, the rewards also tend to be large. This has at least traditionally been the norm in the investment banking and wealth management parts of the industry. 

And lo and behold, from where have all the above mentioned scandals emerged? You guessed it – from investment banks and wealth management.

Banks and other financial institutions play an important role in societies and the global economy. Without financial institutions, we wouldn’t have efficient capital allocation or versatile risk management.

When you play an important part in the society, you need to play according to society's rules. Banks need to shape up and get their internal rules and processes in order. And above all, they need to build better internal cultures and get rid of outrageous incentive programs.