Perversely, while banks are wards of the state and get more support and subsidies than any other type of business (for instance, ZIRP and quantitative easing are massive transfers from savers to financial players), the authorities have lacked the will to discipline them effectively.
Even though the BNP Paribas fine exceeded a year of earnings, the bank’s stock rose 3.6% when the deal was announced, saying that investors though BNP Paribas had done well. The conundrum is indicting a bank at the parent level is widely perceived to be a potential death blow, since many counterparties would have to stop doing business with it immediately.
Removing the US banking licenses of a serial fraudster, another possible remedy, would similarly put a US firm out of business and would inflict severe, permanent damage on a big foreign bank. Hence the tendency of officials to rely on big, or at least big-sounding, fines.
But it is bankers, not banks, that commit crimes.
Here, the BNP Paribas deal falls short. True, 13 officers were forced to resign, including one of its chief operating officers. But he was on the verge of retirement, and more important, no one was charged criminally or fined.
By contrast, in 1991, when Salomon Brothers failed to curb a trader that was repeatedly gaming government bond auctions, Salomon’s CEO, vice chairman, and president departed abruptly.
We’ve seen nothing like that punishment meted out to top executives in the post-crisis wave of investigations. And until that happens, banks will continue to behave as if they have the upper hand.