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Too-big-to-fail remains a very big problem [ClearOnMoney]
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Too-big-to-fail remains a very big problem

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Commentary

Too-big-to-fail remains a very big problem

13 Dec 2012 by Jim Fickett.

Although people are, for now, mostly focusing on the quality of the recovery, another financial crisis will surely come eventually – they always do. So it is discouraging that most of the changes on the regulatory front have been rather superficial. In particular, although much progress has been claimed on the ability to dismantle large banks in an orderly manner, if necessary, the Department of Justice made it abundantly clear at a press conference Tuesday that insiders do not believe that message any more than I do.

The Guardian says it concisely:

US authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the “collateral consequences” of taking the bank to court.

Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC”s “blatant failure” to implement anti-money laundering controls and its wilful flouting of US sanctions, the consequences of a criminal prosecution would have been dire.

Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.

In other words, since the bank is too big to fail, it is immune from criminal prosecution. That's a pretty clear admission that the too-big-to-fail problem has not been fixed.

Neil Barofsky, former Special Inspector General for TARP, comments further at the New Republic and Naked Capitalism,

HSBC paid a record fine, but there was something vitally important missing from yesterday’s press conference: actual criminal charges for obvious criminal conduct.

Some perspective: HSBC sent more than $800 million in bulk cash from Mexico to the United States, a good chunk of which apparently represented proceeds from some of the most notorious Colombian drug cartels. As someone who tried the first narcotics money laundering case involving extradition from Colombia, let me assure you that this is a lot of money, the discovery of which usually generates vigorous prosecutions and lengthy prison sentences. And it wasn’t HSBC’s only dirty business: There were also hundreds of millions of more dollars of illegally disguised transactions with rogue nations such as Iran and Sudan.

Why no criminal charges? Why instead only some remedial measures and a “historical” fine that can be measured in weeks — not years — of earnings? …

the Treasury Department … and other unnamed regulators … were too fearful that an indictment could destabilize the global financial system. Yes, it’s 2008 all over again. In the name of systemic stability, a megabank again escapes accountability for its actions, rescued by compliant officials.

In some aspects, DOJ’s surrender is understandable. Notwithstanding regulatory reform efforts in the U.S. and the UK, the largest banks are in many ways even more systemically dangerous today than when we bailed them out in 2008. This indirect acknowledgment that we have failed to fix the too-big-to-fail problem has potentially dire consequences.