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Regulators Debate Effective Punishments For Guilty Banks

RENEE MONTAGNE, HOST:

And a lot of major banks have been getting into trouble lately - tax evasion, money-laundering, foreclosure, fraud - added to that list this week, sanctions violations. A big French bank will likely admit to the U.S. Justice Department that it handled billions of dollars in trades with Sudan. That's against the rules. But what are the consequences? As NPR's Zoe Chace explains, it's actually pretty hard to figure out how to punish a bank.

ZOE CHACE, BYLINE: A bank is a place that handles lots of money. So the obvious thing is to take some of that money away. The number one way to punish a bank - a big fine. One recent example - Credit Suisse, a big bank in big trouble for helping Americans avoid U.S. taxes. Senator Carl Levin laid it all out in a congressional hearing earlier this year. It's pretty brazen - like when an American client signed up for a secret Swiss bank account.

SENATOR CARL LEVIN: The client was ushered into a remotely controlled elevator with no floor buttons and escorted to a bare room with white walls, all dramatizing the bank's focus on secrecy. And the client always signed a form ordering that the Credit Suisse account statements be immediately shredded.

CHACE: Investigators found thousands of accounts hidden away from the IRS. The consequence for this malfeasance was a fine - $2.6 billion. 26 billion sounds big. In the context of a big bank, though - is that a real punishment? Matt Levine is a columnist for Bloomberg - also a former banker. He says, yeah, that's big.

MATT LEVINE: 2.6 billion dollars is a big number. It's basically equal to Credit Suisse's net income of all of 2013. So, you know, it's a pretty meaningful fine.

CHACE: Imagine you're the guy at Credit Suisse who just told the shareholders, hey we all may $2.6 billion dollar. Then you had to say, just kidding. We actually made nothing last year because the government took it all away.

LEVINE: Like, that's a bad year, right? Like, that's not a bad day. That's a bad year.

CHACE: Did it cause, though, the shareholders of the bank to be like, hey never mind, we're not making any money here off this business. So peace out - did that happen?

LEVINE: No, not at all really.

CHACE: Fines happen all the time now. It's become kind of normal. All the other banks are probably paying out for some crime of their own. So what else can you do to punish a bank? Number two - hurt their reputation. Make them admit their guilt. Take Credit Suisse, again, in addition to the fine, the CEO Brady Dougan had to go before the Senate committee and say basically, there are a bunch of criminals here at this fancy bank.

(SOUNDITE FROM ARCHIVED RECORDING)

BRADY DOUGAN: Credit Suisse's management team regrets very deeply that despite the industry-leading compliance measures we put in place, we had some Swiss-based private bankers who appear to have violated U.S. law.

CHACE: In the banking world, that counts as an apology. Did this hurt their business?

LEVINE: Yeah, people have asked Credit Suisse's executives ever since they pled guilty, you know - are you losing any clients? And the answer is no, everything's fine. We're doing great.

CHACE: You can see why regulators are looking for something more. Option number three - in the next week or so, we are likely to see a brand-new way to punish a bank. The bank who violated U.S. sanctions by trading with Sudan - that bank, BNP, is probably going to have to, one. pay huge fine, two, admit guilt and, three, have to take a sort of timeout from global finance. The bank would be banned from something called dollar clearing. They basically wouldn't be allowed to handle dollars for a while. That is a really big deal because most of world trade is conducted in dollars. You can tell all these punishments together may sting because the French politicians are very upset.

PIERRE LELLOUCH: What I find totally unacceptable is by simply using the dollar, then American legislation becomes extraterritorial and essentially gives American judges the right to punish any company anywhere. This is what shocks me.

CHACE: Pierre Lellouch is a member of the French parliament. He's worried a punishment this severe would badly cripple the ban. The president of France says if you cripple the bank, you destabilize the whole European economy. And that right there is the challenge for the banking regulators. At the end of the day, they don't want to punish the whole global economy for the sins of the few. Zoe Chace, NPR News.

MONTAGNE: You're listening to MORNING EDITION from NPR News. Transcript provided by NPR, Copyright NPR.

Zoe Chace explains the mysteries of the global economy for NPR's Planet Money. As a reporter for the team, Chace knows how to find compelling stories in unlikely places, including a lollipop factory in Ohio struggling to stay open, a pasta plant in Italy where everyone calls in sick, and a recording studio in New York mixing Rihanna's next hit.
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