Does the blame lie with the individual or with the organization?

Some of each, don’t you think?

UBS, the Swiss banking giant, is back in the news today, with the arrest of a European equities trader, whose unauthorized trading has reportedly cost the bank $2 billion.

UBS has been in the news for too many years, for everything from wildly underestimating the subprime mortgage crisis (to the tune of some $37 billion in write-offs in 2007 and 2008) to significant fines ($780 million in 2009) for helping American clients evade taxes. In exchange for turning over more than 4,000 names of clients to the authorities, U.S. prosecutors finally dropped charges against UBS last year (click here for a previous blogpost on ethics at UBS). I could go back even a little further to mention the near-collapse of the bank in 1998 following the actual collapse of the hedge fund Long-Term Capital Management.

As Matthew Saltmarsh writes in the The New York Times "DealBook", “The incident raises questions about the bank’s management and risk policies…” Well, yeah.

He also notes, “The case could also bolster the efforts of regulators who have been pushing in some countries to separate trading from private banking and other less risky businesses.” Well, hurrah! Some of us still think that repealing Glass-Steagall a dozen years ago, thereby permitting commercial banks to operate investment banks, was one of the key factors leading to the financial crises of the last few years.

(What does it say about our society that when one rogue trader costs his employer billions of dollars, he gets arrested and carted off to jail, but when a whole Street-ful of traders cost their government – that is to say, Us – billions, if not trillions, of dollars, no one gets arrested, and their employers get bailed out. By Us.)

But back to UBS, specifically.

Financial Times associate editor John Gapper asks whether “Kweku Adoboli is a rogue trader or his employer is a rogue bank” (click here for his complete blogpost).

Gapper points to resemblances between Adoboli and Nick Leeson, whose unauthorized trades brought down the venerable Barings Bank in 1995, and Jerôme Kerviel of the 2008 Société Générale disaster: Adoboli, like those others, is “young, fairly junior and works on a desk that combined proprietary position-taking with ‘flow trading’ in customer orders.”

But, he adds, there’s more to the situation, as “we know plenty about the proclivity of UBS for getting involved in fiascos in which the bank believed it was taking relatively little risk but ended up losing large amounts of money.”

Finally, Gapper quotes a report UBS commissioned following the 2008 crisis. Written by Tobias Straussman of the University of Zurich, the report concluded:

Top management was too complacent, wrongly believing that everything was under control, given that numerous risk reports, internal audits and external reviews almost always ended in a positive conclusion. The bank did not lack risk consciousness; it lacked healthy mistrust, independent judgement and strength of leadership.

Or, to quote Forbes contributor Robert A. Green, “How can we trust bank accounting and reporting when their internal controls don’t even work?”

After the 2008 crisis, I spoke to a UBS employee, who assured me that all these “ethical lapses” were behind the bank. The new chairman, Oswald Grübel, had brought a new sense of stability and ethics to the organization. “It has to come from the top,” she said, confidently.

I don’t disagree. But I do have to wonder what exactly has come down from the top.

UBS will undoubtedly insist that this is “just one bad apple”, and that, with Adoboli’s arrest, all will once again be right in the world.

But the complete saying is that one bad apple spoils the whole barrel. You can’t just pick the rotten one out and think that everything else is fine. You need to take all the apples out, and look them over carefully, and remove all the other blemished apples, and scrub out the barrel before you can put more apples back in.