In his article “Financial Regulators’ Fine Mess”, the former chief economist of the IMF, Simon Johnson, points out that the recent $13 billion settlement between the US Department of Justice and JP Morgan Chase (JPM) is nothing more than a “symbolic punishment”.
JPM accepted the settlement following charges that the bank overstated the quality of mortgages it was selling to investors in the run-up to the financial crisis. However, as Johnson points out, when compared to fining someone with a median average US income, the fine is equivalent to roughly $25 and will change nothing to the current state of affairs. The civil settlement marks the end of weeks of tense negotiations between JPM and the US Department of Justice, in which Jamie Dimon, JPM CEO, had direct access to US Attorney General Eric Holder and had the opportunity to influence the deal: the Department of Justice called off a press conference and stopped a lawsuit after Dimon personally called the Attorney General and asked him to do so.
Although the Department of Justice considered this settlement as a big step towards holding banks accountable for their behavior before the financial crisis, JPM will pay a $13 billion fine representing a mere insignificant fraction of the total balance sheet of around $4 trillion measured using international accounting standards. JPM already announced it set aside the funds needed to cover the settlement. In fact, the deal will have no impact on its future earnings and the penalty is to be paid largely by its shareholders. In stark contrast to the image portrayed to the public at large, the fine is largely meaningless and JPM will pay a very low price to make the accusations of illegal activities disappear.
Marianne Lalke, JP Morgan’s Chief Financial Officer, even suggested that about $7 billion of the fine is likely to be tax deductible.
JPM is one of the biggest US banks. It would seem that the US Department of Justice believes very large companies deserve special access and special treatment.
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