The Geithner Doctrine and ‘too big to jail’

Neil Barofsky comments in the FT that the banks are still getting off lightly, and remain ‘too big too jail’.   He attributes this to the priority that Tim Geithner gave to preserving global market stability, at the cost of turning a blind eye to the misdeeds of the banking community.  As Barofksy puts it:

This forbearance will have potentially devastating long-term effects, as each  settlement on favourable terms reinforces the perception that, for a select  group of executives and institutions, crime pays. It is only rational. They know  that they will get to keep all of the ill-gotten profits if they go undetected,  and on the small chance that they’re caught, most probably only the shareholders  will pay – and only a relatively minor fine at that. The lack of meaningful  consequences for those committing these frauds encourages future fraudulent  conduct. Ultimately, the financial crisis was a game of incentives gone wild,  and the lack of accountability in the aftermath of the crisis has only  reinforced those bad incentives.

The UK public has had little or no opportunity to give a view on how much ‘forbearance’ should be offered to banks that commit fraud.  Popular feeling has had an impact since 2007, in inserting some backbone to the work of Committee of Banking Standards for example.  But the impact of date on regulators has been harder to see.

How come a major FSA investigation of RBS, post 2008, was initially delayed several times and then failed to bring to public attention the sort of email exchanges on rate-fixing that we are now reading?



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