With Big Banks, 'If You Ain't Cheating, You Ain't Trying'
July 10, 2015 in Economics
Mark A. Calabria
With the recent admission of criminal guilt by five major banks in fixing foreign exchange rates, Attorney General Loretta Lynch recorded some progress in how law enforcers respond to Wall Street misconduct. JPMorgan, Citigroup, RBS, Barclays and UBS admit they conspired to violate the Sherman Antitrust Act in fixing foreign exchange rates. These judicial actions accord with legal procedure. A federal court and judge will rule on them. They are not backroom deals dressed up in the term “deferred prosecution agreement” (DPA), which has been the unfortunate norm until now. Ideally, the Department of Justice (DOJ) will no longer use these DPAs.
Even with Lynch’s judicial progress, however, she can hardly claim that she has proven that no bank is “too big to jail.” These banks are not in “jail” in any sense of the word. Business continues, even at their foreign exchange desks. The collective $6 billion in criminal and regulatory fines meted out against the five banks are paid by shareholders, not the responsible bankers or their supervisors. And worse, the message remains: Cheating pays and otherwise honest bankers must either cheat to compete, or lose. As one of the foreign exchange traders encouraged a fellow conspirator, “If you ain’t cheating, you ain’t trying.”
As for progress, let us hope that these foreign exchange criminal pleas signal the burial of the DPA.
Until now, the DOJ settled fraud claims against major U.S. banks with DPAs. The misconduct included the mortgage fraud associated with the financial crash and recession that left millions without their jobs, homes and life savings. A DPA is a private agreement between the DOJ and the bank in which the government describes the criminal activity, exacts a fine and then agrees not to bring this case to court for a period of time, such as five years.
Why such a light touch? Why a DPA?
The real reason may be that the DOJ reckoned that a DPA is a better bet. After all, in such major cases against a giant bank, government attorneys will square off against a phalanx of high-powered, high-paid bank lawyers, many of whom were recently their bosses at the DOJ. The case will take tie up time, money and personnel. And at the end, the DOJ may well lose. A DPA is much easier. The bankers themselves conduct much of the investigation. Then, the DOJ can stage a press conference. It may not be …read more
Source: OP-EDS
Recent Comments