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January 2, 2014

Financial Regulators’ Fine Mess

“When an athlete breaks the rules, it is easy to figure out whether the relevant disciplinary body really wants to discourage repeat offenses. Suspending a player from the sport – as happens in soccer in the case of dangerous fouls – is a real punishment, not only for the individual but also for the team.

“Consider the case of Michael Clarke, the captain of the Australian cricket team, who recently threatened bodily harm to an opposing player. Despite public hand-wringing, Cricket Australia (the governing body) imposed only a small fine (that is, small relative to Clarke’s annual salary). Whether or not this was appropriate, Cricket Australia was making it clear that such behavior merited only a symbolic punishment.

“The recent $13 billion settlement between the US Department of Justice and JPMorgan Chase (JPM), one of the world’s largest international banks, should be viewed the same way. To the uninitiated, the fine appears significant (which explains all the attention-grabbing headlines), and it certainly has made America’s financial regulators look busy and serious. But, just like Cricket Australia, the message is clear: There will be no change to business as usual.

“JPM was accused of a wide range of illegal activities, including misrepresenting securities to investors and much more. Better Markets, a pro-financial-reform group, points out that what we know about the settlement suggests that it is largely meaningless. As Dennis Kelleher, head of Better Markets, put it,

“’Rather than throwing the book at [JPM] and its executives, the Department of Justice called off a press conference and stopped a lawsuit because the bank’s high profile, politically-connected CEO, Jamie Dimon, personally called the Attorney General and asked him to do so.’”


Read Simon Johnson’s full Project Syndicate blog post here

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