If you drive faster than the speed limit and a speeding ticket costs a dime with no points against your license, will you slow down?
Four worldwide banks, including Citigroup, Barclays, JP Morgan Chase and Royal Bank of Scotland, pleaded guilty on May 20, 2015 to conspiring to manipulate dollars and euros. “The Cartel,” as some traders called the banking group, partially operated through members-only online chatrooms using coded language to rig the twice-daily benchmarks. One trader would amass a huge amount of a certain currency, and then dump it at a critical time while traders from the other banks stayed out of the way. In addition, the banks systematically deceived clients about currency prices. As one Barclay’s VP put it, “If you ain’t cheating, you ain’t trying.”
They were fined $5.4 billion by the U. S.
$5.4 billion sounds like a lot until you consider the facts that:
– those 4 banks control approximately ¼ of the world financial market;
– the world financial market handles approximately $5 trillion per day;
– the banks supposedly rigged rates nearly every day for 5 years, commencing in 2007 and ending in 2012;
– no criminal charges are pending against any individuals;
– the banks have waivers from the Securities and Exchange Commission (SEC) allowing them to conduct business as usual.
In view of the circumstances, is the penalty roughly equivalent to a dime fine for a speeding ticket? Neither punishment seems like much of a deterrent.
I should mention that the Department of Justice (DOJ) is still exploring the possibility of criminal charges against individuals; however, the DOJ’s track record is not encouraging.
Critics of settlements between U. S. regulators and global banks complain of supposed secretive, lucrative Department of Justice methods. If it follows the usual course: the government will decide what is illegal, prove it to nobody, decide on the fine and spend it however it wishes. Meanwhile, it appears that global banks have little incentive to abandon highly lucrative currency rigging.
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