A $1.8bn Slap On The Wrist

by Jonah Shepp

David Dayen is livid at how easy Credit Suisse is getting off after it became the first bank in 25 years to plead guilty to a felony in US court:

In the agreement, Credit Suisse pleaded guilty to one count of aiding tax evasion. The Justice Department made sure to check with New York’s banking regulator, the Securities and Exchange Commission and the Federal Reserve to eliminate any unwanted consequences from the guilty plea, like the revocation of Credit Suisse’s banking charter or investment-adviser license. (Incidentally, there are fewer of these collateral consequences with foreign banks, which gives away why Credit Suisse, and not JPMorgan Chase or Bank of America, was forced to plead guilty.) Instead of a corporate death penalty, Credit Suisse will pay $1.8 billion in fines to DOJ, $715 million to New York’s Department of Financial Services, and $100 million to the Fed. In addition, the bank will have an independent monitor overseeing its activities for two years.

This makes any fallout from the scandal mostly one of reputation, which means not much fallout at all.

Matt Levine finds something for everyone to hate:

If you’re a critic of bank impunity, you think this is dumb because no top executives will go to jail, or even be fired, and really there are no negative consequences beyond what you’d get from civil charges or a deferred prosecution agreement. If you’re a defender of banks, you worry that the Justice Department has missed some unintended consequences, and that Credit Suisse’s guilty plea will cause a colossal and accidental financial crisis.

Either way, the point is that the only consequences of the guilty plea — as opposed to a deferred prosecution, etc. — are the ones prosecutors forgot. Those consequences might be catastrophic, or they might be nonexistent, but if they exist, they exist because no one thought of them. It’s deterrence by accident: Prosecutors did their best to avert everything bad that might come from a guilty plea, but the deterrence value comes from the fact that their best might not be enough.

James Kwak thinks a more appropriate punishment would be to shut down Credit Suisse’s US operations entirely:

There are two main ways to really punish criminals and deter wrongdoing in the future. One is criminal prosecutions of the individuals involved, ideally getting lower-level employees to cooperate and gathering evidence as far up the management hierarchy as possible. (There are ongoing prosecutions against several Credit Suisse employees.) The other is putting a bank out of business by revoking its license. Even if he escapes jail, no CEO wants that on his résumé. And it seems entirely appropriate for a bank that engages in a decades-long criminal conspiracy that costs U.S. taxpayers billions of dollars.

The conventional wisdom, however, is that you can’t revoke a large bank’s license because of potential systemic consequences. (That’s why prosecutors only pressed for the guilty plea after receiving assurances that regulators would not revoke Credit Suisse’s licenses.) If this is true, of course, that’s an overwhelming argument that such “too big to jail” banks shouldn’t exist in the first place. We don’t want a financial system dominated by banks that can willfully flout the law.

Kevin Roose doubts the guilty plea will mollify those who are still angry that nobody went to jail for causing the financial crisis:

What we’ve learned since 2009 is that the prosecution of complex financial crimes is a zero-sum game. With limited resources and a ticking clock, every case you choose to prosecute fully has to be carefully selected, with the most important determinant questions being “will I win this?” and “how long will it take?” Insider trading cases are easier to convict on than mortgage fraud cases; accordingly, they get more attention. Tax evasion is lower-hanging fruit than CEO misbehavior, so it’s naturally where prosecutors want to direct their attention.

That’s understandable, and forcing guilty pleas on lesser charges is perhaps better than the alternative. But let’s not conflate issues here. “Too big to jail” isn’t a controversy about how banks will be treated in the future. It’s a scandal about how they’ve been treated in the recent past. And no number of guilty pleas is likely to calm the public down, especially when the pleas seem to have so few real-world consequences.