How criminal charges became another day at the office for banks
On Wednesday, four of the world's largest banks - JP Morgan, Barclays, Citigroup and Royal Bank of Scotland - pleaded guilty to criminal charges in the US relating to the rigging of currency markets.
The four, and Switzerland's UBS, which pleaded guilty to a different charge, agreed to pay $5.7bn (£3.6bn) in fines.
It is rare for a company to be found guilty of criminal behaviour. For some bank watchers this move represents a problem for regulators: aside from more fines, little else has changed, and they may have just played their best card.
Two years ago, the then US Attorney General Eric Holder opined that criminal charges against large banks could threaten the global economy. But now?
"Now it's a non-event. We have trivialised the criminal penalties, so I don't know what's left," says Cornelius Hurley, director of the Boston University Centre for Finance, Law & Policy.
"It used to be that the fear of a criminal penalty was you might lose your banking licence. That it would be a death knell. That's been removed - nobody has lost their licence," he adds. "Somehow there has to be a fear factor."
Getting banks that have admitted criminal behaviour to change their ways is now a task for their clients, who may want to review who changes money for them, he says.
"Why continue doing business with a bank that's just pleaded guilty to a crime and tried to screw you?"
While a larger punishment than a criminal penalty is difficult to conceive of, there are other tricks up the sleeves of the authorities.
For Prof Simon Johnson, of the MIT Sloan School of Management and previously chief economist at the IMF, the next step regulators could take is an anti-competition probe.
"The key thing here is market power," he says. "The people fixing foreign exchange called themselves 'the cartel'. Cartels only operate when there's a relatively small number of players, so I think that there are major anti-trust issues here.
"The banks claim there were only a few rogue individuals but the rogue individuals only had the ability to do it because there is implicit market power in the concentration of the foreign exchange market."
Outside of finance the usual remedy is breaking a company up, says Prof Johnson. Regulators may be worried about the impact of breaking up banks, but there is historical precedent, he adds.
"With the breakup of Standard Oil in the early 20th century; there were plenty of complaints about pricing power, so it was broken up and the market became a lot more competitive."
Standard's 33 constituent companies went on to be very profitable and made John D Rockefeller the richest man in the world.
"It was good for the country and good for the shareholders and that's how I would see what would happen with the big banks," says Prof Johnson.
Holding regulators back could be the financial success they are enjoying with their current model.
"Whether anything has been achieved other than subsidising the US government is open to question," says Mike Koehler, expert on anti-corruption law at Southern Illinois University.
"They have great difficulty in proving criminal charges against individuals, but they can extract multibillion dollar settlements against companies."
But that is something they should be looking to do, says Prof Johnson. "I think the most important thing is criminal prosecution where you prosecute individuals."
His view is shared by Prof Anat Admati of Stanford Graduate School of Business and author of the book The Bankers' New Clothes.
"How can we be assured that this behaviour won't repeat? Criminal sanctions sometimes means people go to jail, but that cannot happen for a corporation, so we must wonder about the deterrent effect of the punishment," she says.
"It would be important to go for the top of the corporation, similar to how Bob Diamond at Barclays in the UK was forced out when the Libor scandal broke out in 2012.
"There was pervasive manipulation. And who at the top knew or should have known and put in the controls to prevent it?"
"I would hope they go up the chain higher up these organisations - for me that's the key. If managers claim they didn't know what's going on in their banks that should not be an appropriate defence," she says.
For the banks, the next thing to think about is the civil lawsuits clients are already filing, says Boston University's Prof Hurley.
It is difficult to prove whether clients lost out or gained on currency transactions, but once a company has agreed it's guilty of criminal behaviour, the hardest part is over, he says.
"If you already have a guilty plea, the rest becomes a whole lot easier."
"Coming up with a number is difficult but you hire forensic experts," he says. "You determine responsibility first and damages second. Responsibility is usually the hard part.
"Just because you can't prove the number doesn't mean it goes away," he says. An agreement could be made, just as an agreement is made in any other legal action for damages such as wrongful dismissal, he adds.
In the meantime, admission of crime will be a difficult thing for banks to wear, says Prof Hurley.
"Banking is built on trust. Take away the trust you have virtually nothing left. To be criminal and say trust me - it's very difficult to get the words out."
|Total US fines (2010-14)*|
|Lloyds Banking Group||122.97|
Source: CCP Research Foundation's Conduct Cost Project
*2014 figures are provisional only