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Criminal charges don't scare big banks anymore. Perhaps the Justice Department's fresh commitment to threatening top executives with prosecution will keep them in line.
September 15 -
The Justice Department's announcement that it would target individual executives at banks and other companies that are being investigated for wrongdoing has sparked a debate about whether the move is actually substantive or instead just designed to boost the agency's public image.
September 10 -
The failure to prosecute bankers as a result of the financial crisis has sparked an ongoing debate about whether enforcement officials lacked the will to move forward with any cases or didn't have enough proof that any crimes had been committed.
August 21
After the "too big to jail" debate took off in 2013, the
These convictions followed
But if the Department of Justice is going to make any headway in 2016 in convincing critics that it is serious about prosecuting systemically important banks, these guilty pleas just aren't enough. Indeed, the recent pleas, including those over the forex scandal, were defined by a bunch of curious things that didn't happen. No licenses were yanked. No charters were revoked. No one went to jail. No pension funds switched banks. Share prices did not plummet. The Securities and Exchange Commission and other regulators signaled that, despite being felons, these big institutions were not such bad actors after all. In short, life went on pretty much as it always had. Nothing to see here, folks, move along.
Let's review how the "too big to jail" issue first picked up steam. In 2013, then Attorney General Eric Holder gave the "too big to fail" institutions a hall pass on obeying criminal laws when he testified
After weeks of temporizing, Holder
The recent pleas still haven't convinced anyone. In truth, some argue that recent convictions have made the situation worse by trivializing felony charges for the big banks but not for everyone else.
That said, the story isn't over, both in terms of the government's prosecution of financial institutions and executives. After the appointment of current Attorney General Loretta Lynch last year, Deputy Attorney General Sally Yates gave a widely publicized speech in which she argued that the department was
So far our elite financial institutions have benefited from not one but two forms of bailout. In addition to the unprecedented backing for their unsecured creditors in the 2008-9 financial crisis, there is the rescue of more recent vintage in which these same institutions are bailed out from the collateral consequences of their admitting to having engaged in criminal activities.
We ought to be paying more attention to the bailouts of the second variety. But big-bank advocates won't readily acknowledge the sweetheart deals these banks have received in return for guilty pleas.
Recently, I had a chance to attend the annual conference in New York sponsored by The Clearing House, the lobbyist for the big banks. During one of the panels, in which the moderator discussed the benefits of the limited collateral damage from recent guilty pleas, I attempted to question the participants during the Q&A session about whether that was in fact good public policy. But I never got an answer as my question was ruled out of order by the moderator.
No reasonable person that I know of is arguing that a criminal conviction should automatically carry with it nuclear consequences for a TBTF bank. It would, of course, for a community bank. Most would argue, however, that there should be some proportionality between the offense and the punishment. As it stands now, there is no proportionality, just a "Get out of Jail Free" card for the big-bank perpetrator.
Cornelius Hurley is director of the Boston University Center for Finance, Law & Policy, and a former assistant general counsel for the Federal Reserve Board.
