Well that didn’t take long. A week after JPMorgan Chase paid $410 million to settle allegations that it manipulated energy markets, the heat is now on Bank of America for its holdings of mortgage-backed securities in the run-up to the financial crisis.
The Justice Department and Securities and Exchange Commission are suing BofA for allegedly misleading investors about the quality of $850 million in residential MBS. The announcement came on the same day that UBS agreed to a nearly $50 million settlement to quell allegations that it too misled investors in a complex security.
Surprise, surprise—the fallout of Wall Street’s Great Recession continues. It’s nice to know that the enormous financial institutions that brought us the financial crisis are being held accountable, to some degree, for acting recklessly leading up to the crisis. But it’s important to remember that these institutions were also rewarded for their greed and excess with trillions of dollars in taxpayer-funded bailouts. Further, let’s not forget that their government guarantee against failure is estimated to be worth another $83 billion per year.
To make matters worse, these are the kinds of activities that result in new across-the-board regulations for the banking industry—community banks included. It wouldn’t be the first time Main Street institutions had to pay their pound of flesh for the sins of Wall Street.
So not only are these kinds of actions bad for investors, they are also harmful to the rest of us who have never gambled a red cent on these kinds of complex financial instruments. And while an $850 million fine might sound like a lot, it’s actually chump change for a multinational financial institution that made $4 billion in net profits in the second quarter alone. For UBS, $50 million is a rounding error.
For me, this goes back to the issues of accountability and the healthy fear of failure that are sorely missing in our world of too-big-to-fail financial institutions. These firms are able to act in bad faith and take outsized risks because they enjoy an explicit guarantee against failure and financial penalties that are merely a small cost of doing business.
With each new headline of megabank greed and recklessness, ICBA is more and more convinced that downsizing and restructuring these behemoths is the only way to protect our financial system from existential risks, our community banks from suffocating regulation and our nation’s taxpayers from perpetual servitude to our Wall Street masters of the universe.
Just ran into your Blog it is refreshing to hear another that has a belief that Community Banking is the cornerstone of building America.
I am a retired banker, I still dabble helping with workouts and customers with loan needs. I worked for multi billion dollar organizations for a number of years. But a light came on relative to really making a difference in people’s lives and that was able to be done at the Community Bank. We did multimillion dollar transactions but we did them jointly. Local big organizations make those hard but as a group we could act quicker and became closer with the customer
You don’t have to read this but I get on the soapbox KEEP UP YUR BLOG YOU HAVE GAINED A READER
It flabbergasts me to read the revenue and loan numbers published by the FDIC …. Percentages in $ reflect very little of the TRUE impact the Community Bank makes little loans in actual dollars when compared to the big guys but there is a huge impact with these small loans to people and lives. The economic trouble started by the megas and accelerated by the Fed was catastrophic to community banks … If the banks community banks would have been allowed to work with thier customers the situation of accelerating downward spiral of RE values would not have happened the Fed does very little to the Negas but they can sure run roughshod over CBs …. CBs cannot fight
There is no balance of power with the FDIC they are the lawmaker, the judge, jury, and jailer. They demand coerce intimidate direct and close at will community banks but sure walk carefully with the big boys.