The huge US fines imposed on banks

[Evariste Euler Gauss]

I'm assuming nobody on here is remotely sympathetic to the banks which have quite rightly just been made subject to colossal fines in the US for yet another bit of criminal behaviour, this time FX rate fixing.

I don't suppose anyone is naïve enough to feel any great schadenfreude either, as the individual perpetrators, and indeed their bosses, are doubtless getting nothing like their just punishment on an individual personal level.

But the amounts are so huge that, to me at least, it raises some questions of national allocation. Or, to put it bluntly, why is the US fisc getting all that dosh from the fines while we in the UK, and other relevant fiscs such as Germany, Japan etc. aren't?

That's a particularly sensitive point, of course, in relation to the largely UK state-owned RBS. The fine on RBS is a chunky financial transfer from the British public to the US public.

Does anyone on here know the answer to any of the following:

- Do the US prosecutors and judges just make these numbers up as they go along, or is there some publicly transparent set of criteria by reference to which they can be assessed?

- Is the criminal behaviour in question specifically tied to US-based markets (a question that arises not least because as I understand it London is the biggest FX market globally by volume, bigger than NY)?

- Or is it believed that most of the clients ripped off by the criminal behaviour were, by rip-off volume, US based?

- Are the authorities in Frankfurt, or Tokyo, or London, likely to raise proportionate fines?

- Is it at all an issue in international diplomacy that the US fisc seems to get these massive streams of fine income, way in excess (even taking proportion into account) of those arising to authorities in other countries, from global banks?

[Incandenza]

The huge US fines imposed on banks

Ursus?

[ursus arctos]

The huge US fines imposed on banks

There are professional limitations on what I can say about this, but the basic answers are

a) no, there is no formula, and certainly not a transparent, public one;

b) US regulators have become much more willing to extract monetary fines from institutions, in part because we now have a dynamic in which there are multiple agencies at both the state and federal level that have jurisdiction over these cases; and

c) Banks have become fearful that US regulators will actually act on their threats to pull licenses, materially restrict business lines and/or charge senior executives with crimes, and are willing to pay comparatively huge sums to avoid same (in part because recent experience has been that their share price actually goes UP when they do, due to the removal of uncertainty).

The banks involved have paid fines to non-US regulators (the 284 million sterling that Barclays are paying to the FCA is a new British record), but the European political dynamic is very different from the one in the US.

And yes, non-US regulators are jealous, though perhaps less so due to the fact that they can still rely on funding from traditional sources. In the age of Congressional gridlock and Tea Party madness, fines have become a way for regulatory agencies to make budget.

[Evariste Euler Gauss]

The huge US fines imposed on banks

Interesting, thanks ursus.

[caja-dglh]

The huge US fines imposed on banks

The most impressive achievement from my perspective is that the SEC is actually getting the banks to admit to wrongdoing. It always used to be that the banks paid a $400 million fine related to something but didn't admit anything - the beautiful plea-bargain of cash for no criminal charges.

FX by its nature is everywhere and nowhere (hence its wild-west approach which isn't at all surprising) - as Ursus notes, the UK has seemed to get on the fining bandwagon recently, but the US has set an incredible fundraising precedent from the crisis. They very much noticed the public support for hitting the banks hard and did not hesitate.

[ursus arctos]

The huge US fines imposed on banks

Yes, that was a very important change, and all down to the Eric Holder Department of Justice and Mary Jo White's SEC.

After Arthur Andersen, it was taken as gospel that pleading guilty would lead to the rapid and inevitable implosion/bankruptcy of any large institution, but they (with the clear support of the President) challenged that, and once it became clear that guilty pleas were survivable, they've become more or less standard for behaviour that this is egregious.

The current debate is over which legal entity pleads guilty, but even there, the trend is towards having the actual bank (rather than some minor sub) take the fall (as was the case in all of today's pleas).

[Ginger Yellow]

The huge US fines imposed on banks

It's only a very small part of it, but there's also the fact that the UK process includes an automatic 33% reduction if the party in question co-operates "early" in the investigation.

[linus]

The huge US fines imposed on banks

one key question is how much money did the cartel make over the years it colluded fixing FX markets, I would guess that it's far greater than $5B.