WASHIGNTON — Rep. Barney Frank is calling on state and federal officials to reconsider prosecuting banks for the sins of smaller institutions they were pressured to acquire at the height of the financial crisis.
Frank, who was the chairman of the House Financial Services Committee during the meltdown, said JPMorgan Chase, for example, purchased Bear Stearns at the "strong request" of the Federal Reserve and then-Treasury Secretary Hank Paulson.
A state and federal task force led by New York Attorney General Eric Schneiderman is now suing JPMorgan for acts committed by Bear Stearns prior to the 2008 acquisition.
"The federal officials involved believed that the failure of Bear Stearns would have terribly negative consequences for the economy, and they urged JPMorgan Chase to do a good deed by taking over an institution which, I believe, the bank would never have sought to acquire absent that urging," Frank said in a statement released Monday. "The decision now to prosecute JPMorgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished."
The remedy in these situations should be to pursue individuals who engaged in potentially criminal acts, not the institutions for which they worked, Frank said.
That doesn't mean there should always be immunity. While a similar rationale applies to Bank of America's takeover of Merrill Lynch, Frank said it should not apply to the company's acquisition of Countrywide Financial.
"However, in those cases where larger financial institutions absorbed smaller ones at the request of Bush administration officials who understandably sought to minimize damage to the broader economy, it is inappropriate to punish those institutions for prior activities of the entities they absorbed," he said.
He clarified that he is not calling for any change in procedures used by the Federal Deposit Insurance Corp. or other regulators when liquidating failed institutions.