Massachusetts Senator Elizabeth Warren said today at a Senate Banking Committee hearing that JPMorgan chairman and CEO Jamie Dimon's 74% pay raise to $20 million for the year "raises questions about whether our enforcement strategy is working or if it's so bad that it makes banks more likely to break the law." His bank paid over $20 billion in fines and compensation to homeowners this year to settle regulatory actions and lawsuits.
The hearing on data security and financial stability brought four senior financial regulators and one senior Treasury official in front of the committee and provided a forum for yet another strong critique by the populist Massachusetts senator of what she sees as fundamentally weak regulation of the country's largest banks. In particular, she once again called for more criminal cases that could result in jail time — as opposed to the enforcement actions and civil cases that can be brought by the regulators Warren was criticizing.
Warren pointed out that Dimon himself said that he pursued settlements with regulators and federal prosecutors because a federal criminal trial "would really hurt this company and that would have been criminal for me to subject our company to those kinds of issues."
"If Jamie Dimon says that he could not go to trial," Warren said, "If regulators are even slightly willing to take a large financial institution to trial, that will have an impact on future behavior."
In response to Warren, the acting commissioner of the Commodities Futures Trading Commission Mark Wetjen argued that his agency's massive settlements with banks over manipulating LIBOR, a reference rate used for pricing trillions of dollars of financial products, had meaningfully changed behavior without bringing criminal charges.
Warren's comments are part of a long-running debate over how to regulate and even prosecute large banks. The former head of the criminal division in the Justice Department, Lanny Breuer, said in a Frontline documentary early last year that before bringing a criminal case against a large bank, "regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case … it creates a ripple effect so that suddenly counter-parties and other financial institutions or other companies that had nothing to do with this are affected badly, it's a factor we need to know and understand."
This was widely interpreted as saying that some institutions were effectively "too-big-to-jail" and Breuer announced his intent to leave the Justice Department a month later.
In May, Attorney General Eric Holder said, "Banks are not too big to jail. If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought."
A portion of the Justice Department's record-breaking settlement with JPMorgan over its sale of mortgage-backed securities before the financial crisis stemmed from a criminal investigation of the bank started by federal prosecutors.
JPMorgan's $1.7 billion penalty for its failure to properly monitor its relationship with Bernie Madoff came along with what's known as a deferred prosecution agreement, where prosecutors don't bring charges in exchange for the bank not violating those laws and improving its own compliance policies. Neither resulted in jail time or charges against individual executives.