Well that didn’t take long. A week after JPMorgan Chase paid $410 million to settle allegations that it manipulated energy markets, the heat is now on Bank of America for its holdings of mortgage-backed securities in the run-up to the financial crisis.
The Justice Department and Securities and Exchange Commission are suing BofA for allegedly misleading investors about the quality of $850 million in residential MBS. The announcement came on the same day that UBS agreed to a nearly $50 million settlement to quell allegations that it too misled investors in a complex security.
Surprise, surprise—the fallout of Wall Street’s Great Recession continues. It’s nice to know that the enormous financial institutions that brought us the financial crisis are being held accountable, to some degree, for acting recklessly leading up to the crisis. But it’s important to remember that these institutions were also rewarded for their greed and excess with trillions of dollars in taxpayer-funded bailouts. Further, let’s not forget that their government guarantee against failure is estimated to be worth another $83 billion per year.
To make matters worse, these are the kinds of activities that result in new across-the-board regulations for the banking industry—community banks included. It wouldn’t be the first time Main Street institutions had to pay their pound of flesh for the sins of Wall Street.
So not only are these kinds of actions bad for investors, they are also harmful to the rest of us who have never gambled a red cent on these kinds of complex financial instruments. And while an $850 million fine might sound like a lot, it’s actually chump change for a multinational financial institution that made $4 billion in net profits in the second quarter alone. For UBS, $50 million is a rounding error.
For me, this goes back to the issues of accountability and the healthy fear of failure that are sorely missing in our world of too-big-to-fail financial institutions. These firms are able to act in bad faith and take outsized risks because they enjoy an explicit guarantee against failure and financial penalties that are merely a small cost of doing business.
With each new headline of megabank greed and recklessness, ICBA is more and more convinced that downsizing and restructuring these behemoths is the only way to protect our financial system from existential risks, our community banks from suffocating regulation and our nation’s taxpayers from perpetual servitude to our Wall Street masters of the universe.
Well that didn’t take long. A week after JPMorgan Chase paid $410 million to settle allegations that it manipulated energy markets, the heat is now on Bank of America for its holdings of mortgage-backed securities in the run-up to the financial crisis.