The recent guilty pleas and fines against five of the world’s largest financial institutions demonstrate not that regulators are finally cracking down on megabank crime, but that it’s still business as usual on Wall Street.
Five global banks pled guilty to conspiring to manipulate interest rates and foreign currency exchange markets and have to pay nearly $6 billion in fines. But compared with the fines and lawsuits awaiting individual community bankers who exercise poor judgment in running their institutions, these megabank penalties are small potatoes.
While JPMorgan Chase, Citigroup and others pled guilty to market manipulation, no single individual from these institutions was called to account. A lengthy digital trail of chat room conversations from traders who called themselves “The Cartel” shows that plenty of individuals knowingly broke the law to line their pockets. Yet, not one of these individuals was held legally responsible for their illegal, anticompetitive and costly activities. Meanwhile, the institutions themselves have been granted waivers from regulators that allow them to continue operating and engaging in securities activities despite their violations.
For community bankers, this just doesn’t compute. In our neck of the financial industry, no one is above the law. Even boards of directors not directly involved in the daily operation of community banks can be hauled into court, publicly humiliated and held liable for poor judgment at their institutions. As I wrote in a recent letter to banking regulators, violations of this magnitude at a community bank would have promulgated the resignations of senior management and possibly the outright closure of the bank.
It’s incomprehensible to this former community banker that not a single Wall Street senior executive or director has been held culpable for violations that brought on the greatest financial crisis since the Great Depression. But Wall Street executives can break the law and suffer no personal consequences at all.
Even the nearly $6 billion in fines don’t register much of a blip on the balance sheets of institutions with a combined $7.9 trillion in assets. The fines represent just 7.3 basis points for these five banks. As Warwick Business School Dean Mark Taylor recently wrote, the $545 million fine on UBS would represent a whopping 15 percent ding on the megabank’s annual bonuses. Oh, the humanity! In fact, the financial markets reacted so positively to news of the fines that the share prices for several of the penalized banks increased. Like I said: just another day on Wall Street.
When you crunch the numbers, it’s obvious that even headline-grabbing guilty pleas and billon-dollar settlements don’t eliminate banking industry inequities. The United States has always held steadfastly to the ancient principle that all are equal before the law. And while that long-held value has applied even to U.S. presidents, it apparently does not apply to Wall Street executives.
If we truly want to rein in market manipulation, policymakers must adopt a fair and consistent enforcement policy that treats community banks and megabanks alike. There should not be one set of enforcement procedures for the largest institutions and another for everyone else.