London Whale: JPMorgan Chase's $920 Million Fine is Huge, But Banks Need a Different Form Of Punishment
Results of settlements between JPMorgan Chase and regulators from the U.S. and Britain released on Thursday outline the firm's admission of wrongdoing and $920 million penalty it must pay for it. While the fine amount seems unimaginable to the average individual, is it really enough to punish the biggest bank in the United States?
The settlements were made following the "London Whale" trading scandal in which JPMorgan Chase trader Bruno Iksil made a big gamble in the credit market. When the gamble failed, the trader lost $6.2 billion and chose to cover up the extent of the damage. Due to this foul play, the firm must pay $920 million in losses to the regulators including the Securities and Exchange Commission, the Office of the Comptroller of the Currency, the Federal Reserve, and the Financial Conduct Authority in London. While these fines are among the largest in recent history, they make a weak dent in the financial state of the banking powerhouses. While fines may briefly unsettle the company, a path toward oversight and sanctions would be more effective at preventing future misconduct.
Compared to other bank fines, JP Morgan Chase's tops the charts. The London Whale scandal falls just below the $1.92 billion fine given to HSBC for its failure to prevent money laundering in 2012. Similarly, the London Whale fine competes with the UBS's scandal of 2012 in which it agreed to pay the United States government $1.2 billion for Libor fraud. While the fine comes close to 1 billion dollars, the woes aren't over for JPMorgan Chase as the estimated legal bills add up to a whopping $5 billion and the FBI continues to conduct an investigation of the bank.
The large fines represent taking only a small portion of profits from banks that habitually get into legal trouble. The lack of effective consequences does nothing to prevent future misconduct. The $920 million in fines JPMorgan Chase received make up about 5% of its annual net income, a trend that is similar for other big banks who receive fines.
The criminal allegations for executives at JP Morgan Chase may have negative implications for the company, but only time will tell if the negativity will harm their company's productivity. The inability to effectively reprimand big banks for breaking the rules highlights the need to change the way we sanction the crime occurring in our banking system. Big fines may seem damaging to the average wallet, but they do little to harm the wealthiest of companies.