AG Holder Tells Congress Some Banks ‘Too Big to Jail’

American Banker
March 6, 2013

WASHINGTON — U.S. Attorney General Eric Holder said Wednesday that a bank’s size can make it difficult to prosecute, adding significant weight to critics’ concerns that some institutions are “too big to jail.”

Lawmakers, including Sens. Elizabeth Warren, D-Mass., Sherrod Brown, D-Ohio, and Chuck Grassley, R-Iowa, are among a growing coalition of bipartisan policymakers who say more must be done to confront “too big to fail” institutions when they engage in wrongdoing. Their arguments have been bolstered after the Justice Department announced a $1.92 billion settlement with HSBC to settle anti-money laundering problems related to terrorist financing and drug trafficking, but did not seek to prosecute the bank or any of its employees.

Holder told the Senate Judiciary Committee that the size and interconnectedness of some institutions has “made it difficult for us to prosecute” in some cases, in response to a question from Grassley, the panel’s lead Republican, about the HSBC deal.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” said Holder, who cautioned he was speaking generally and not about the HSBC case specifically. “I think that is a function of the fact that some of these institutions have become too large.”

Addressing bank size is something lawmakers in Congress would “need to consider,” he added.

But Holder defended the Justice Department’s efforts in prosecuting those who may have contributed to the financial crisis, like bankers who repackaged bad mortgages into securities that were sold with high ratings. Many critics have asked why more crisis-era cases haven’t been made in the five years since the crisis.

“I think we have been appropriately aggressive, these are not always easy cases to make. When you look at these cases, you see that things were done ‘wrong’ then the question is whether or not they were illegal,” said Holder. “And I think the people in our criminal division… I think have been as aggressive as they could be, brought cases where we think we could have brought them. I know that in some instances that has not been a satisfying answer to people, but we have been as aggressive as we could have been.”

The top Justice Department official’s comments will no doubt fan the flames of those frustrated with the lack of criminal prosecutions brought against the big banks, and likely energize those pushing for legislative reforms to break up the largest institutions or otherwise regulate their size.

“By adding his voice to the ‘too big to jail’ debate, Holder has now joined a growing chorus of policymakers — on both sides of the aisle — who are focusing their attention on the size of the world’s largest banking institutions,” said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. “Although Holder’s answer was somewhat of a strategic deflection to pointed questions, it was an important admission nonetheless given his position. We continue to doubt that ‘too big to fail’ legislation can pass in this Congress but Holder’s statement will unquestionably add addition momentum to the legislative effort.”

Elizabeth Warren Takes On Eric Holder’s ‘Too Big To Jail’ Statement

The Huffington Post  |  By Posted: 03/06/2013 7:27 pm EST  |  Updated: 03/07/2013 9:09 am EST

Elizabeth Warren Eric Holder

Sen. Elizabeth Warren (D-Mass.) took on Attorney General Eric Holder’s admission that some banks are too big for the Justice Department to prosecute, asserting that Holder’s statement illustrates why the financial institutions should be held accountable.

“It has been almost five years since the financial crisis, but the big banks are still too big to fail,” Warren said in a Wednesday statement. “That means they are subsidized by about $83 billion a year by American taxpayers and are still not being held fully accountable for breaking the law. Attorney General Holder’s testimony that the biggest banks are too-big-to-jail shows once again that it is past time to end too-big-to-fail.”

Earlier Wednesday, Holder testified before the Senate Judiciary Committee during a hearing on Justice Department oversight. During the hearing, Sen. Chuck Grassley (R-Iowa) asked Holder about the “slippery slope” of the “too big to jail” mentality in cases of bank prosecution.

“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy,” Holder said. “I think that is a function of the fact that some of these institutions have become too large.”

The Huffington Post’s Mark Gongloff reported:

Holder’s comments don’t come as a total surprise. His underlings had already made similar confessions to The New York Times last year, after they declined to prosecute HSBC for flagrant, years-long violations of money-laundering laws, out of fear that doing so would hurt the global economy. Lanny Breuer, formerly in charge of doling out the Justice Department’s wrist slaps to banks, told Frontline as much in the documentary “The Untouchables,” which aired in January.Some observers have defended the Justice Department, suggesting that prosecuting law-breaking banks would amount to a death penalty that could upset the financial system and trigger another recession — although nobody really knows if it would do any such thing. But by not prosecuting law-breaking banks, and confessing to its terror of prosecuting those banks, the Justice Department has waved a big checkered flag to the biggest banks to go ahead and break all of the laws they want.

Since entering office in January, Warren has made a splash on Capitol Hill as a member of the Senate Banking, Housing and Urban Affairs Committee. Last week, the freshman senator pressed Federal Reserve Chairman Ben Bernanke on whether the government would get tough on the “too big to fail” institutions.

“Big banks are getting a terrific break, and little banks are just getting smashed,” Warren said.

Earlier in February, Warren tookbank regulators to task over the lack of trials for Wall Street banks.

“There are district attorneys and United States attorneys out there every day squeezing ordinary citizens on sometimes very thin grounds and taking them to trial in order to make an example, as they put it,” she said. “I’m really concerned that ‘too big to fail’ has become ‘too big for trial.’”

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