Record Fine Shows Some Banks Are Too Big to Indict

Agenda-Setting Financial Insight.
Dec. 11 2012 4:31 PM

Record Fine Shows Some Banks Are Too Big to Indict

HSBC is one of the globally systemic banks that would be easiest to break up

Photo by PHILIPPE LOPEZ/AFP/Getty Images

HSBC’s $1.9 billion fine for money-laundering is a record for a bank, but its one-off nature means that it’s largely symbolic for an institution with a market cap of 118 billion pounds. The outcome could have been worse. Some U.S. regulators wanted to indict the UK lender, according to a New York Times report, but they backed down on fears that a heavy-handed approach could destroy HSBC’s U.S. arm and destabilise the wider banking system.

Prosecutors at the U.S. Justice Department were considering three options for HSBC and in the end chose the least punitive, according to the report. Of the two tougher calls, a money-laundering indictment would have spelt the end of the bank’s U.S. business, forcing it to withdraw its banking charter; a lesser criminal indictment would have left HSBC facing restrictions on the scope of its operations as a minimum. Both could have triggered a negative impact on the economy that authorities were keen to avoid.


Of course, the wide-ranging steps that HSBC has taken to overhaul its business in the wake of the alleged money-laundering may also have swayed prosecutors’ opinion. But the consideration given to the prospect of systemic risk shows how little has been done since the beginning of the financial crisis to force banks to plan for orderly resolution, in spite of pledges to the contrary.

True, a joint paper on how to deal with failing banks published on Dec. 10 was welcome evidence of joined-up thinking between the U.S. Federal Deposit Insurance Corporation (FDIC) and the Bank of England - but the details were scarcely fleshed out. Meanwhile, other contradictory moves by regulators do little to help: German, UK and U.S. watchdogs are angling for banks to set up separately capitalised subsidiaries, in order to keep cash from leeching abroad.

As it is, HSBC is one of the globally systemic banks that would be one of the easiest to break up: its overseas entities are separately capitalised to a greater degree than most peers’. Yet regulators chose to leave its U.S. business largely unchanged - even though they have another five years during which they can indict the bank if it fails to stick to its side of the bargain. In the meantime, the record-breaking fine is yet another sign that, four years after the collapse of Lehman Brothers, finance is far from fixed.

Read more at Reuters Breakingviews.

Dominic is a London-based columnist covering investment banking. Prior to Breakingviews, he spent two years at moneydealer ICAP.



The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

The Religious Right Is Not Happy With Republicans  

The XX Factor
Oct. 1 2014 4:58 PM The Religious Right Is Not Happy With Republicans  

How Did the Royals Win Despite Bunting So Many Times? Bunting Is a Terrible Strategy.

Catacombs Where You Can Stroll Down Hallways Lined With Corpses

Homeland Is Good Again! For Now.


Operation Backbone

How White Boy Rick, a legendary Detroit cocaine dealer, helped the FBI uncover brazen police corruption.


How Even an Old Hipster Can Age Gracefully

On their new albums, Leonard Cohen, Robert Plant, and Loudon Wainwright III show three ways.

The One Fact About Ebola That Should Calm You: It Spreads Slowly

Piper Kerman on Why She Dressed Like a Hitchcock Heroine for Her Prison Sentencing

Trending News Channel
Oct. 1 2014 1:25 PM Japanese Cheerleader Robots Balance and Roll Around on Balls
  News & Politics
Oct. 1 2014 4:15 PM The Trials of White Boy Rick A Detroit crime legend, the FBI, and the ugliness of the war on drugs.
Oct. 1 2014 2:16 PM Wall Street Tackles Chat Services, Shies Away From Diversity Issues 
Oct. 1 2014 6:02 PM Facebook Relaxes Its “Real Name” Policy; Drag Queens Celebrate
  Double X
The XX Factor
Oct. 1 2014 5:11 PM Celebrity Feminist Identification Has Reached Peak Meaninglessness
  Slate Plus
Behind the Scenes
Oct. 1 2014 3:24 PM Revelry (and Business) at Mohonk Photos and highlights from Slate’s annual retreat.
Brow Beat
Oct. 1 2014 3:02 PM The Best Show of the Summer Is Getting a Second Season
Future Tense
Oct. 1 2014 4:46 PM Ebola Is No Measles. That’s a Good Thing. Comparing this virus to scourges of the past gives us hope that we can slow it down.
  Health & Science
Oct. 1 2014 4:03 PM Does the Earth Really Have a “Hum”? Yes, but probably not the one you’re thinking.
Sports Nut
Oct. 1 2014 5:19 PM Bunt-a-Palooza! How bad was the Kansas City Royals’ bunt-all-the-time strategy in the American League wild-card game?