Attorney General Eric Holder made it official in testimony before the Senate Judiciary Committee: Some banks are so big that criminal prosecution poses an unacceptable danger to the U.S. and world economies. This is not Holder's opinion alone. In the past, the Justice Department has consulted with the Federal Reserve, the Comptroller of the Currency, and the Federal Deposit Insurance Corporation to assess the consequences of criminal prosecution. This is a government-wide problem.
This means that if a bank is large enough it has a license to engage in criminal conduct. At least it can weigh the upside of the criminal behavior against potential civil penalties. The authorities are powerless to compel compliance beyond this. We have institutionalized that crime pays.
Early action might catch bad behavior. But the regulators are not very adept in that area either. The Permanent Subcommittee on Investigation report on the HSBC hearings last summer catalogue more than 45 warning letters from the Comptroller citing behavior that was incontrovertibly money laundering for rogue states and drug cartels. Nonetheless, HSBC kept laundering for years.
Fed Governor Bloom Raskin, a sensible regulator, recently called on the banks to be more concerned about reputational risk. History suggests that this will not be an effective deterrent.
