JPMorgan Chase's $13 billion regulatory settlement is the latest case of banking indigestion attributable to long-tail liabilities stemming from practices almost a decade old.
Five years following the crisis, banks like JPMorgan are painfully adapting to new rules of the game designed to make the system more robust. The inevitable costs are being passed along to customers and long-suffering shareholders. One can hope the high tuition pays off down the road in better financial stability.
Still, memories are short. A growing shadow banking system, new products, persistent regulatory fault lines and renewed erosion of due diligence in some markets shows the persistent need for vigilance. Meanwhile, banks have been called on the carpet for an amazing variety of transgressions that encompass fixing Libor and foreign exchange benchmarks, aiding and abetting money laundering and tax evasion, rigging metals and energy markets and an assortment of fiduciary and consumer protection abuses. Most of these allegations are independent of the crisis legacy, and have surfaced despite what were thought to be adequate legal and regulatory safeguards. All of them first came to light at individual banks. But most of them later turned out to be industry practice.
Read full article as published in American Banker
___Ingo Walter is the Seymour Milstein Professor of Finance, Corporate Governance and Ethics.