Policy Changes Against Banks’ Wrongdoings
Now big banks cannot act as greedy as they used to be since the era of “too big to fail” is over and the Justice Department is changing the way of punishing banks’ wrongdoings.
JPMorgan Chase and Credit Suisse were charged a combined $416.9 million to settle the civil charge against them of misleading investors in the sale of risky mortgage bonds prior to the financial crisis. Goldman Sachs also paid $550 million for the same charge. HSBC was also once put into a situation where it has to pay a fine of $1.25 billion of allowing clients to transfer fund from Mexico, Iran, Saudi Arabia and Syria, which violated the U.S. Bank Secrecy Act and the Trading with Enemy Act. However, the fine has not been materialized because such amount of money would put HSBC into bankruptcy.
Other than civil charges, the Justice Department tries to be harsher to punish serious wrongdoings in order to warn other banks. Barclays was the first one charged with $453 million of its manipulating Libor rate. UBS and Riyal Bank of Scotland followed up with $1.5 billion and $612 million fine. Both plead guilty of the wrongdoing on a criminal level.
Here is a quick refresh of the issue. London Interbank Offered Rate (“Libor”) is the average interest rate of some major London banks when they borrow money from each other. This is based on a self-reported basis. Libor rates are calculated in 10 currencies of 15 different durations realized by Thomson Reuters. Approximately $350 trillion in derivatives and other financial products are related to the Libor. The spread of 10 bp between the Libor and comparable interest rate caught attention of the Federal Reserve Bank of New York in late 2007. After series of investigation, UBS and the Royal Bank of Scotland and several of other banks committed to their intentional manipulation of Libor rate. Three main characteristics of their wrongdoing are understate their Libor submission in efforts to remain...
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