The guilty pleas mean the banks are literally felons, and it’s a distinct shift in the way law enforcement has dealt with Wall Street in the past.
Lawsuits and legal fees are nothing new for the banks: since the financial crisis, they have essentially become the cost of doing business on Wall Street.
Now, apparently, that cost includes both legal fees and criminal charges. The thing is, no one seems to be fazed.
This case has nothing to do with the financial crisis. Rather, a couple years ago, traders from a handful of banks manipulated the London Interbank Offered Rate, an important interest rate used around the world as a benchmark for mortgages and other loans. Other traders manipulated the prices at which banks bought or sold currencies.
No individual traders from the guilty banks, which include Barclays, Citicorp, JPMorgan, RBS, and UBS, have been held criminally accountable. But the banks are paying $5.6 billion in fines (together with Bank of America, which is only paying a civil penalty, not a criminal one).
You might think the criminal charges are a big win for regulators. Finally, the banks are taking responsibility for their crooked employees, rather than pawning the blame off on overseas subsidiaries!
But the reality is probably less of a triumph for regulators than it seems.
Peter Henning, a Wayne State University securities law professor, thinks the whole ordeal will be just another write-off for the banks, like any “one-time” legal fee you might find in a bank’s earnings report.
He wonders if, for the banks, pleading guilty to felonies and paying criminal fines is just “another cost of doing business” — a routine but acceptable drag on profits, no different than paying salaries, rents, and utility bills.
The banks are paying a hefty amount of money for the crimes (Barclays alone is paying $2.4 billion). But it’s not like they haven’t had to do that before.
The difference this time is that some people were expecting that criminal charges – rather than civil charges – would lead to some sort of collateral consequence for the banks.
Instead, all five banks were granted waivers from the SEC that will allow them to carry on with business as usual. They won’t have to deal with any limitations on loans, deposit-taking, securities issuing, or other restrictions that they would otherwise have faced.
The waivers thing is not new, either. SEC Commissioner Kara Stein, who is not a fan of the procedure, pointed out that Barclays has already gotten three waivers since 2007, UBS has had seven, JPMorgan has had six, and RBS has had three.
In return for this round of waivers, though, the banks agreed to a three-year probation period in which they promise not to commit any more felonies.
That’s a nice promise, but Henning believes this week’s punishments are unlikely to change anything on the Street.
He compared the criminal penalties to an individual getting a $100 speeding ticket: no matter how you label it, you’re still going to be paying the money.
“If it’s called a civil penalty or a criminal fine, do you care?” he said. “It’s the same $100. And with the banks, if you have to pay $2 billion or $1 billion, do you care what label it gets? Or which federal regulator gets it?”
Wall Street ethics
The news of the banks’ punishments coincided this week with the release of a study on Wall Street’s ethics from Labaton Sucharow and the University of Notre Dame.
The study revealed that a quarter of finance workers would break the law in order to make an extra $10 million. It also found that 17% of Wall Streeters believe it is “unlikely” that top bosses would tell enforcement about illegal activity.
The deeper worry here is that Wall Street’s beliefs may have shifted from ‘it’s OK to do wrong, so long as you don’t get caught’ to ‘it doesn’t really matter, even if you do get caught.’
Bank executives reject this notion. They say their companies’ crimes were committed only because of a few bad individuals.
JPMorgan, for example, issued a statement saying the bad conduct was “principally attributable to a single trader (who has since been dismissed) and his coordination with traders at other firms.”
The firm’s CEO, Jamie Dimon, said, “The lesson here is that the conduct of a small group of employees, or of even a single employee, can reflect badly on all of us.”
Likewise, Barclays CEO Antony Jenkins said, “I share the frustration of shareholders and colleagues that some individuals have once more brought our company and industry into disrepute.”