This week's settlement between JPMorgan Chase, the nation's largest bank, and the U.S. Justice Department is, indeed, prodigious. But what assurance does it offer that the bank, and other mega-banks that shared a $700 billion bailout, have changed their ways?
JPMorgan will pay $13 billion — the biggest civil penalty ever paid by a single company — to resolve allegations that it knowingly misled investors about the quality of mortgage-backed securities, contributing to a worldwide financial crisis.
From that fine, $4 billion is earmarked for loan modifications and other direct relief for struggling homeowners. JPMorgan also will pay $299 million to offset investment losses suffered by California's public employee and teacher pension funds.
Unlike several recent settlements, this one is more than a slap on the wrist. JPMorgan will surrender a sum exceeding half of its profits for last year.
And there may be more to come. The settlement agreement didn't halt a criminal investigation of JPMorgan, and Justice Department lawyers said the case provides a template for settling claims against other major financial institutions. A task force is investigating at least nine other big banks, including Citigroup and Bank of America, according to the Financial Times.
Score one for accountability.
Irresponsible behavior by financial institutions brought the economy to the brink of collapse. But that didn't happen in a vacuum. It was enabled by weak rules, poor supervision by regulatory agencies and inadequate congressional oversight.
Today, five years after the meltdown, the megabanks, the institutions deemed too big to fail, are bigger than ever. The six largest U.S. banks hold more than two thirds of the assets in the U.S. financial system, topped by JPMorgan at $2.5 trillion. And they're as close as ever to the people responsible for their oversight.
Case in point: JPMorgan Chairman Jamie Dimon personally negotiated aspects of the settlement with Attorney General Eric Holder. How many defendants get to do that?
Bank lobbyists, meanwhile, have thwarted or stalled almost every effort to tighten regulations and reduce the risk that a bank failure, such as Lehman Bros. in 2008, could again spiral into an economic calamity.
As Sen. Ellen Warren, D-Mass., pointed out in a speech last week, regulators have missed 60 percent of the congressional deadlines for implementing the Dodd-Frank financial reform bill, which was passed in 2010.
Among the delayed regulations is the Volcker Rule, named for former Fed chairman Paul Volcker, which is intended to ban proprietary trading desks at too-big-to-fail banks. Other important provisions of Dodd-Frank have been watered down in the regulatory process. There's been no progress on stricter capital requirements.
In the meantime, investigations and 10-figure settlements have mounted. JPMorgan alone has settled mortgage claims with investors, states and the U.S. government. It also paid fines for rigging electricity prices in California and reckless trading in the "London whale" case. All the while, its stock has held steady.
We applaud the efforts of the Justice Department to punish malfeasance. But it's past time for new rules that will prevent bad behavior in banking.
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