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The Justice Department likely hopes that Credit Suisse's guilty plea to a criminal charge will squash the idea that some large institutions are too important to the economy to prosecute. But experts say the issue is more complicated than that, arguing that the debate will live on. Here's why.
May 20 -
Benjamin Lawsky, the head of New York's Department of Financial Services, on Wednesday called for regulators to hold individuals responsible for recent industry scandals. He also warned that his agency may ban some banks from certain businesses over money-laundering violations.
March 19 -
HSBC has spent billions of dollars in compliance and legal costs, but the damaging scandals keep coming. Renewed attention on the problems at its Swiss private bank could fuel the debate about whether banks this size are too big to manage.
February 17 -
Executives and senior management officials at the nation's largest banks must be held accountable for Bank Secrecy Act violations, Comptroller of the Currency Thomas Curry said Monday.
March 17
Big banks are in the
By contrast, hundreds of officials were jailed during the savings and loan crisis and past corporate fraud cases including Enron and World Com. The big difference between then and now comes down to the size of the defendants. The Department of Justice has deemed senior officials of the country's biggest banks too important to charge.
In the past, prosecutors relied on
Crimes are committed by humans not organizations. If prosecutors decline to jail or even fine individuals, criminal law hardly works as a deterrent.
Banking is a team sport. Someone is always either calling the plays or condoning the play selection. If bank management truly didn't know about their employees' misdeeds, they should have known about it. And if institutions are too big and complex for senior officials to know what their underlings are doing, as HSBC chief executive Stuart Gulliver
When we allow managers to plead ignorance as a defense for wrongdoing, we encourage further ignorance and illegal activity.
Prosecutors have struck a Faustian bargain with too big to fail banks. In exchange for declining to file charges against senior management, they get a quick plea, substantial fines and the appearance of being tough on crime. Everyone wins except the public.
There is a simple way to stop bankers from violating the law, and it doesn't require new laws or breaking up the largest financial institutions. The DOJ simply needs to begin charging the bankers who commit crimes instead of focusing solely on the firms for which they work. When appropriate, prosecutors can also assess monetary fines and damages against the banks as restitution.
This is not about bashing big bankers or punishing them for bad business decisions and excessive risk-taking. It's about eliminating the de facto immunity from criminal charges that bankers currently seem to enjoy.
By prosecuting individuals who are responsible for misdeeds, the DOJ can curtail illegal activity and restore public trust in big banks and in the law itself.
J.V. Rizzi is a banking industry consultant and investor. He is also an instructor at DePaul University Chicago.