Are Major Banks Really Too Big to Jail?

The following is an excerpt from Banks and Markets of an article titled “Are Major Banks Really Too Big to Jail?” by NYU Stern Professor and MS in Risk Management Academic Director, Ingo Walter:

iwalterIt used to be that financial institutions indicted on a criminal charge went out of business long before they had their day in court in a proper jury trial, which is their right. Instead, clients and employees would flee and regulators would be forced to withdraw their operating licenses. Unlike individuals convicted on a criminal charge, this is as close as things ever came to jailing an institution. Not anymore.

By sowing fear and intimidation among its regulators and law enforcement officials – based entirely on its own vulnerability to punishment – the Credit Suisse pleaded guilty to a criminal offense and emerged as a convicted felon clean as a whistle, with no apparent effect on its business, its management or its shareholders.

Having confessed to one count of criminal fraud, CEO Brady Dougan told a press conference on May 20th he didn’t think there would be any effects on the bank – no “material impact on our operations or capabilities.” There was the small matter of $2.6 billion in fines and penalties, but he said that could be earned back by the end of the year and wouldn’t affect the bank’s regulatory capital. No serious changes in strategy. No senior management changes. No discernible boardroom reaction. No client defections. No investor flight. Just business as usual. Credit Suisse stock in Zurich was up 2% on the day in an otherwise flat market.

Read full article as published in Banks and Markets

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