Enforcement against the Biggest Banks

Abstract

Being a big bank means the regular payment of huge fines to a number of different regulators, paired with profuse apologies, and promises to do better next time. This article makes use of a hand-collected dataset to show how this enforcement worked in the United States after the passage of the Dodd-Frank Wall Street Reform Act. American regulators have tended to hunt the big banks in packs, with multiple regulators pursuing fines against financial institutions for the same misconduct. Regulators frequently enforce in a ‘viral’ manner: once they sanction one bank for a type of misconduct, the chances that they will sanction another bank for the same sort of misconduct increases. Some regulators like to bundle a variety of different unlawful actions by banks into one global settlement. Enforcement by the Department of Justice can result in spectacularly expensive settlements compared to the level of enforcement by primary banking regulatory agencies; overall, Department of Justice sanctions in dollars dwarf those of all other agencies policing part of what a bank does. American enforcement, despite suspicion to the contrary, does not appear to protect domestic banks and discriminate against foreign ones. Although this article’s primary goal is to make sense of the federal government’s overall enforcement practices, one recommendation is made: criminal prosecutors should consult with safety and soundness regulators before unveiling indictments and settlements against banks.