Economic Impact of Fines Imposed on Banks
Ebony Miller-Pugh
Wilmington University

Abstract

This paper will discuss the fines imposed on banks. Furthermore, this paper will determine if these fines have an effect on the economy – both from a national and global scale.

I believe that fines imposed on banks will have a detrimental effect on the economy. In my opinion, the top three potential impacts of these fines are:
Lower profits
Potential lending issues
Consumer and employee impact

Introduction The financial institution of today is vastly different from those of yesteryear. Those that have survived the test of time and have been in business for many years have seen many changes over the years. Those changes in which financial institutions face differ greatly within a global, and national and a regional one. Regulators today are no loner letting things “slide” and are imposing steep fines and/or penalties to financial institutions in an effort to enable a business environment where the “right way of doing business” supersedes that of pure profit. Global financial institutions are on an uphill battle as well. They have to do right by their stakeholders – they have a fiduciary responsibility – while also maintaining the laws and regulations within the company as a whole and also within each jurisdiction they are located. Financial institutions today are faced with increasing regulations from a regional, national, federal, and global level. Recently participating in a training class, the instructor said to the class, “A start-up financial institution in todays world would not survive due to all the regulations and oversight necessary in the world today”. True? Possibly. It’s enough to make one think about it. Financial institutions are among the most heavily regulated entities in the United States. The Federal Reserve System, Securities and Exchange Commission (SEC), the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) are a few agencies that exist for several reasons: to monitor the banks; to ensure information is made available to investors; and to also ensure the overall soundness of the financial system (Mishkin, F pgs. 30-21, 2015). These agencies can impose fines and/or criminal prosecution against banks if they are deemed to not be correctly following the law and/or regulations that are enforced. Outside the United States, the outher countries have their own regulatory oversight regarding financial institutions. The Prudential Regulation Authority (UK), the Federal Financial Supervisory Authority (Germmany), the Financial Services Agency (Japan) and the Office of the Superintendent of Financial Institutions (Canada) are a few regulating agencies that exist to promote financial stability (www.bis.org). These agencies, similar to those within the United States, can impose fines to financial institutions. For reference purpose, the top 10 global financial institutions, based on assets are (in ranking order of first to tenth): Industrial & Commercial Bank of China (ICBC), HSBC Holdings (UK), Deutsche Bank (Germany), Credit Agricole Group (France), BN Paribas (France), Mitsubishi UFJ Financial Group (Japan), Barclays PLC (UK), JP Morgan Chase (USA), China Construction Bank (China) and Japan Post Bank (Japan) (www.bankrate.com). Some of these banks will be discussed further within the paper. The Fines
Banks have regularly been fined for wrongdoings. Since 2000, the OCC has levied millions of dollars against financial institutions for a variety of reasons (www.occ.gov). We will look at all three to gain a better perspective. At the end of 2012, the largest fine ever imposed by the OCC for violations to the Bank Secrecy Act (BSA) wa to HSBC Bank USA – a whopping $500 million USD (www.occ.gov). The total fine to HSBC was 1.92 billion – this included agreements or consent orders with the Manhattan District Attorney, the Federal Reserve and three U.S. Treasury Department units: the Office of Foreign Asset Control, the Comptroller of the Currency and the Financial Crimes Enforcement Network (www.huffingtonpost.com). In addition to the fine, HSBC entered into a Deferred Prosecution Agreement (DPA) with the U.S. Department of Justice. As a result, for the next minimum five years, HSBC must consent to full cooperation with all authorities, maintain an “open-door” policy with regulators, give full access to independent monitors to review activity, and overhaul its compliance policies and procedures. Furthermore, any time during these five years, the authorities can extend the amount of time in the DPA if it deems “necessary” due to inadequate progress. In addition, if authorities determine that HSBC isn’t trying hard enough, or not actively showing legitimate progress, the DPA could be in a violation and senior executives imprisoned (www.justice.gov).