Waiting for bank prosecutions

Waiting for bank prosecutions

US banks are still collapsing, the question is whether the people who ran them will get off scot free.

The Wall Street Journal reports that the watchdog of US banks, the Federal Deposit Insurance Corp, has launched 50 criminal investigations into bank failures. More than 300 US banks have closed their doors since the beginning of 2008, but only a few have prompted criminal charges for fraud and recklessness with other people's money.

Compare this with the S&L crisis of the 80s and 90s where nearly 2000 lending institutions were wiped out. More than 1000 officers, directors and other officials went to prison as a result but this time around, following the worst financial meltdown since the Great Depression, no bank director or manager has been prosecuted. The US government just wimped it.

For sure, the actions of the FDIC coincide with a lot of pressure being put on the US government to exact some justice. But will that happen?

Peter Henning, a professor of law at Wayne State University, puts it in perspective. Just because the FDIC says it's conducting criminal investigations, it doesn't mean anything is going to happen. The FDIC has limited powers. It can't compel witnesses to testify and produce documents like a federal grand jury. The only thing it can do is scrutinize documents from the failed bank to see if there are telltale signs of fraud or improper lending practices. And if it finds any misdemeanors, it has to refer the matter to the Justice Department which can take months, even years, to subpoena documents and interview witnesses before it makes up its mind whether or not to prosecute.

In any case, there is the burden of proof. Proving criminal intent behind bad business decisions is difficult, even if those decisions were motivated by greed.

My bet? You won't see any banker going to jail for this meltdown. In the US, bankers are a protected species.


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