Last week JPMorgan agreed to pay a record $13billion to the American authorities to 'settle' various investigations into its pre-crisis mortgage lending business. Deutsche Bank today announced that it would be keeping about $1billion to one side in view of on-going 'legal costs', while a Dutch bank has stated that a similar amount has so far been paid in relation to the never-ending LIBOR scandal. Apparently around nine international banks are seeking to pay off American regulators to end investigations into price fixing, including our very own RBS.
As well as banks paying vast sums to close investigations into their mortgage businesses and their employees' manipulation of LIBOR, billions have been set aside in the UK for compensation claims due to various 'mis-selling' scandals. Let's call it what is rather than using such ridiculous Orwellian NewSpeak. They sold financial products to consumers fraudulently, in full knowledge of this fact. The word 'mis-selling' seems to imply they did it by accident. That would be like me saying 'I mis-slept through my alarm this morning'. Or it would be like Sainsbury's selling a salmonella-ridden chicken to a child who subsequently got food poisoning and claiming it was the farmer's fault, not theirs. Bullshit in both cases.
And HSBC, a bank that has seemed to get through the court of public opinion relatively unscathed, paid a figure of almost $2billion for having laundered money for drug lords, Middle Eastern despots and other delightful individuals. Sorry, what? You funnel drug money through the system and no one goes to prison? A billion or four is nothing to these institutions.
Why, then, is no one jumping for joy? The banks have admitted guilt and they are paying us back for all the dodgy deals they got into!
Well, not really. Banks are, in effect, 'fessing up to having behaved fraudulently or criminally. However what 'settling' means is actually 'paying regulators to shut up and stop asking difficult questions'. This is not the same as admitting guilt or wrongdoing. In fact, if you google 'banks admitting their guilt', not much comes up. This is because they haven't really and are now successfully buying their innocence by giving under-resourced and under-staffed regulators are lot of money.
It's a clever ploy. The banks which settle can draw a line under their previous misdemeanours, reassuring everyone that they are reformed and that they have learnt their lessons. 'New management systems' have been introduced, 'risk-based compliance structures' are in place and 'appropriate incentives' are now 'cascading downwards' to avert future law breaking. Forgive me for not being convinced. When a company director says 'how am I to know whether my employees are breaking the law or not', confidence is not inspired. In any other company, such a comment would sound utterly ridiculous.
In reality, they are making a savvy business decision based on the rational conclusion that if they do not settle, the final figure could be far, far larger. $13billion is a drop in the ocean when considering the vast amounts of money governments flooded the banks with during and after the crisis. And the ongoing damage done to their public image is hugely expensive in itself. JPMorgan appeared to be a holy cow in comparison to the evil squid, Goldman Sachs. Now its sheen has been replaced by a tarnish, as people have clocked onto the fact that even though it didn't get bailed out, it has been implicated in just as many scandals as its less fortunate rivals.
And why has no one been locked up? It's approaching a decade since the banks started selling mortgages inappropriately and even longer since they started 'misselling' things to consumers. Sadly the problem is that they weren't really breaking any laws at the time. The governments and regulators of the pre-crisis era were complicit in the outrageous behaviour of the banks. And the pension funds and the asset managers who look after our money were buying all the crap the banks were selling. The entire system was (and continues to be) a mess. You can't retroactively make something illegal just because you don't like it. The banks know this and that's why no one has gone to prison.
This also ties into why the authorities are accepting such relatively tiny sums of money from the banks. Simply put, they can't do much else. They are under-resourced and are no match for the banks who can afford the best legal protection from the most experienced lawyers on the planet.
And the regulators know full well that the bigger the fine, the more likely they are to induce financial instability. As Eric Holder, the US's attorney-general admitted during a Senate hearing last year, the banks are too big to jail as well as being too big to fail. Sadly, five years on, the banks remain in charge even if it might look like governments are getting some cash out of them. Don't be fooled.