Ten years ago this month, the financial crisis erupted, and within a matter of weeks the banking landscape was transformed. Merrill Lynch was taken over by Bank of America. Lehman Brothers collapsed. AIG had to be bailed out by the federal government. Goldman Sachs and Morgan Stanley, the last two independent investment houses, were forced to become bank holding companies subject to stricter regulation. JPMorgan Chase took over Washington Mutual. Congress was compelled to create the $700 billion Troubled Asset Relief Program.
What were the consequences of the widespread misconduct that caused the meltdown? Lehman turned out to be the only major institution to suffer the fate of liquidation. No top executives at any banks faced personal criminal or civil charges. The federal government sold off its holdings in the companies that were bailed out.
The most significant penalty was financial. According to data collected for Violation Tracker, banks were hit with a total of $89 billion in penalties relating to the issuance and sale of the toxic securities at the center of the crisis. More than $40 billion in penalties were imposed in related mortgage abuse cases.
While by some measures these penalties are significant, they are far less than the amount of harm the banks caused to the economy and the financial well-being of homeowners, workers and others. What is even more frustrating is that the billions in payments seem to have failed in their main purpose: discouraging banks from engaging in similar bad acts in the future.
We don’t have to wait to see if this is true. Even while they were still resolving cases stemming from the financial crisis, large banks were starting to engage in more wrongdoing.
Exhibit A is Wells Fargo, which is now more notorious for its behavior subsequent to the meltdown. It will forever be known as the bank that created millions of bogus accounts to generate illicit fees from its customers. Earlier this year, Wells was fined a total of $1 billion by the Officer of the Comptroller of the Currency and the Consumer Financial Protection Bureau. That came after the Federal Reserve took the unprecedented step of barring the bank from growing any larger until it cleaned up its business practices.
Bank of America has also been accused of harming its customers. In 2014 the CFPB ordered the bank to provide $727 million in relief to credit card holders charged for deceptive add-on services. BofA’s Merrill Lynch unit has in recent years been fined repeatedly by regulators for a variety of improper practices. In June, for example, the SEC penalized Merrill $42 million for falsely telling brokerage customers that it had executed millions of orders internally when it had actually farmed them out to other firms.
Citigroup faced its own allegations of illegal credit card practices, and in 2015 it was ordered by the CFPB to provide $700 million in relief to customers. This year, in an unusually aggressive enforcement action by the Trump-controlled CFPB, Citi was ordered to pay $335 million in restitution to 1.75 million credit card customers for failing to properly adjust interest rates.
These abuses may not jeopardize the entire economy like those of the early 2000s, but they show that the big banks remain ethically challenged.