The government shouldn’t spend so much energy trying to regulate Wall Street and punish the bank wrongdoing that brought the economy down five years ago, according to JP Morgan’s (JPM) top lawyer. Just days after his bank came to a $13 billion settlement with the government over its mortgage misdeeds that will actually cost the bank far less, JPM’s general counsel Stephen Cutler criticized regulatory fines as excessive and wondered aloud, “At what point does this stop?”
“There has to be a better way to allocate government resources,” Cutler added, criticizing the overlapping efforts of regulators. He was speaking Friday on a panel in New York City alongside a pair of government regulators, one from the Office of the Comptroller of the Currency (OCC) and the other from the Consumer Financial Protection Bureau (CFPB). Those agencies represent an infinitesimal fraction of government spending. The OCC had a net operating cost of $54.2 million in 2012, which is 0.0015 percent of that year’s federal budget. The $343.3 million budget requested by the CFPB for 2012 was equal to 0.0097 percent of the budget.
The Wall Street lawyer focused most of his criticism on the scale of the government’s enforcement efforts. “We should all be concerned” about settlements like the one unveiled last Monday, Cutler said, “because at a certain point people become immune to the numbers.” Those numbers are deceptive in this case: JPM’s actual costs will be closer to $5 billion than $13 billion thanks to tax breaks and the structure of the settlement.
On a broader level, the notion that government enforcement efforts across the industry as a whole have been too stringent or involved oversized sums is also out of step with the facts. The total legal bill big banks racked up for financial crisis investigations, settlements, and court fights between the beginning of 2010 and the summer of 2013 was $66 billion. That’s less than a third of what those companies reported in profits over that same period, and about one percent of what the financial crisis cost. Federal Reserve researchers tried to put a price tag on the crisis this summer and found that it took a minimum of $6 trillion out of the national economy, and likely closer to $14 trillion.
Furthermore, the whole concept of banks facing consequences for their housing bubble profiteering and fraudulent mortgage market activities is fairly novel. When Attorney General Eric Holder promised major financial prosecutions in August, it raised eyebrows because the five years since the crisis have yielded so little enforcement from regulators and government prosecutors. Major settlements over mortgage industry abuses have failed to curb those abuses and failed to provide the level of help to struggling homeowners that was promised. The Securities Exchange Commission (SEC) dropped one of its most significant cases in August, fitting an ugly pattern for the agency’s crisis cases. Recent SEC settlements have drawn headlines because they actually required some investors to admit to wrongdoing, a break with the past policy of letting bankers settle without either admitting or denying their guilt.