Giant banks have racked up more than $4 billion in U.S. penalties in a wave of settlements weeks before the presidential election. That says a lot about an industry that once vowed to behave after the 2008 financial crisis — and about the regulatory risks it sees ahead.
Goldman Sachs Group recently incurred a record punishment for foreign bribery under a roughly $3 billion package of accords for its role in Malaysia’s plundered 1MDB investment fund. JPMorgan Chase resolved a market-manipulation probe for more than $920 million. Citigroup was fined $400 million for failing to maintain adequate risk controls.
For the industry, that bulge of settlements — plus others — removes the threat of stiffer fines if President Trump loses this week and challenger Joe Biden installs more aggressive regulators to take over active probes.
But the penalties also cast fresh light on the persistence of financial professionals’ misbehavior, with investigators noting that the schemes at Goldman and JPMorgan began brewing before the 2008 crisis was fully over. That’s an untimely stain as banks brace for the potential arrival of new sheriffs.
“To the extent that some of the lessons from the financial crisis seem to be going unlearned, I think that is a problem,” said Christopher Wolfe, head of North American banks coverage at Fitch Ratings. “You would think by now that everybody knows you’re going to get caught — these things always get found out and there’s always going to be consequences for it, but yet people still engage in this behavior.”
Recurring misconduct doesn’t only antagonize regulators. Fines can indicate governance failings that can weigh on banks’ credit ratings, especially in a more difficult economic environment, Wolfe wrote in a
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The three giant U.S. banks aren’t alone in settling recently. Since the start of August, Deutsche Bank, Capital One Financial, Bank of Nova Scotia and Toronto-Dominion Bank also have resolved probes with penalties that piled up into the hundreds of millions of dollars.
If Trump loses, more banks may rush to wrap up cases before Biden’s inauguration.
“There are a handful of financial institutions in my view that may try to settle with an outgoing Trump administration rather than face what could be a more aggressive Biden enforcement regime,” said Elliott Stein, senior litigation analyst at Bloomberg Intelligence. “If Trump wins, I think ongoing cases continue apace.”
To be sure, ending a probe isn’t just a matter of writing a check. Accords often include agreements to overhaul internal systems or controls. In some cases, such as the Federal Reserve’s cap on Wells Fargo’s assets — essentially limiting the bank’s growth — that’s the main focus.
Ultimately, remediation can stretch over years and cost
“The sentiment in the public from regulators to consumers, to ESG investors — they’re all becoming much less tolerant of financial crimes and misconduct,” Haddad said. “There’s going to be increased pressure on banks and corporates” to manage nonfinancial risks that can have serious economic consequences, she said.
Banks may win some credit if they take a tougher stand on wrongdoing with measures in-house, according to Stein. Goldman, for example, has said it will
“Egregious cases result in stiff fines no matter which administration, but the more banks can do on their own to administer punishments, like with clawbacks, the more leniency they may get from the government,” Stein said.
