Holding banks accountable

May 13, 2014

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U.S. Attorney General Eric Holder would like you to think that large financial institutions are not “too big to jail”. The Justice Department has been investigating two foreign institutions, France’s BNP Paribas and Switzerland’s Credit Suisse, for months, looking to bring criminal charges against a bank for the first time in decades. This week, it finally seems like they are closing in.

Though the Justice Department is cloaking its investigation in the rhetoric of the financial crisis, Binyamin Appelbaum notes that these cases, in fact, have nothing to do with it. BNP is being investigated for doing business with blacklisted countries like Sudan and Iran, and routing some of the transactions through the U.S. Credit Suisse is accused of helping U.S. citizens evade taxes.

The Credit Suisse case isn’t even that new. It’s been around since at least 2009, when UBS settled with the government over similar allegations. While UBS got away with a $780 million fine, Credit Suisse is now facing $2 billion in fines and a guilty plea. The bank’s CEO, Brady Dougan, who got a 26% pay increase last year, is also being urged to quit. “If Dougan had been smarter about this, Credit Suisse almost certainly could have settled this case without the bank having to plead guilty to anything”, writes Jonathan Weil.

The banks are attempting to deal with the problem in a couple of different ways: In December, Credit Suisse set up a special holding company, where it dumped all accounts that might fall under investigation (which prosecutors may or may not be willing to charge). If the parent company is hit with an indictment, it may not be legally allowed to operate in the U.S. anymore. BNP is taking a more direct approach: begging. Executives from the bank traveled to New York and Washington last week to let prosecutors know that a “guilty plea could wreak havoc on BNP and the broader economy well beyond France’s borders”.

If criminal charges do come, “banks could lose one of their best negotiating tactics: revving up fear of financial calamity”, writes Joel Schectman. But it’s actually unclear whether criminal charges would be fatal to a big bank, writes Matt Levine – and the Justice Department knows this:

The logic seems to be that prosecutors have no real idea if criminal charges would bring down a bank, so they’ll just play around for a bit and see what happens. Start with BNP Paribas. Get a criminal guilty plea. If that puts it out of business, sparks a financial panic, and puts its 190,000 employees out of work then, you know, oops! Don’t do that again.

But hey, “Holder wants his legacy to be that of an enforcer”, says Allie Jones, and time is running out. — Shane Ferro

On to today’s links:

Central Banking
There’s a labor shortage at the Fed - NYT

Your Retirement Plan
Half of Americans think they will have enough money to retire - Gallup

Technically Speaking
“Forget Big Brother – Google is better!” - Mathias Döpfner

Good Luck With That
Silicon Valley workers should take cues from their colluding bosses - AJAM

Good News
The labor market is (maybe!) not broken - Justin Wolfers

Remuneration
Goldman’s UK profits were down 73% last year. Pay per person rose 3% - eFinancial Careers

Things That Exist
Guy Fieri jewelry - Guy!

Dismal Science
Talking to Piketty’s translator: “Thomas is hardly the first literate economist” - Alternet

Unintended Consequences
What’s the biggest threat to the TV ad market? A massive oversupply of TV - Pando Daily

Ugh
Tim Geithner trusted banks more than bankers trusted banks - Noam Scheiber

Remembrances of Things Past
Most FICC revenue is gone, never to return - Reuters

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