Warren Upbraids Regulators Over Dimon's Raise
Under current conditions, bank executives would be crazy to hold back. If they get caught, they can pay their way out of the problems with shareholders money. And if their misdeeds pay off as expected, the profits will goose their pay.February 3
WASHINGTON Sen. Elizabeth Warren, D-Mass., continued her drumbeat this week to send bankers to prison, warning regulators that their lax enforcement is encouraging banks to keep breaking the law.
"We try to deter future misconduct by sending people to jail," said Warren during a Senate Banking Committee hearing on Thursday. "In the civil system, we try to deter future bad conduct by having treble damages and other things that will be sufficient deterrents. But right now, if financial institutions can just settle their claims out of court, and get a raise for settling them, then where's the deterrent?"
Warren was specifically concerned about JPMorgan Chase & Co., which paid out $17 billion last year alone to settle claims with the federal government over a range of issues, including fraudulent mortgage-backed securities and illegal foreclosure practices like robo-signing. The New York-based company also paid penalties tied to its manipulation of energy markets in California and the multibillion-dollar trading loss from the London Whale.
Even with such headlines, the bank's board of directors agreed to give CEO Jamie Dimon a 75% raise, lifting his compensation to $20 million.
"I think this raises questions about whether our enforcement strategy is working or whether it's actually so bad that we're making it more likely for big banks to break the law," said Warren.
In making her argument to regulators, she quoted a recent editorial from Neil Weinberg, American Banker's editor-in-chief. "'Bank executives would be crazy to hold back'," she read from the article. "'If they get caught, they can pay their way out of the problem with shareholders' money. And if their misdeeds pay off as expected, the profits will goose their pay.' I'll add, even if they do get caught, the executives might still get a raise."
She asked top officials at the banking regulators to respond, but they struggled for an answer.
Federal Reserve Board Gov. Daniel Tarullo said the agencies are more concerned with whether a firm is properly capitalized and ensuring executive compensation would not undermine a bank's capital.
"The issue is between the shareholders and the executive, as long as it does not run afoul of those code of safety and soundness considerations, that's not something we get directly involved in," said Tarullo.
Warren did commend Securities and Exchange Commission Chair Mary Jo White for changing the agency's "no admit, no deny" rule, so there would be less wiggle room available for financial institutions.
But she still insisted regulators should pursue litigation in order to hold banks publicly accountable, especially if bankers like Dimon acknowledge the difficulty of being party to a criminal trial.
"If Jamie Dimon says that he could not go to trial, and it's totally up to him, this should enhance your leverage," said Warren. "It tells me that if regulators are even slightly willing to take a large financial institution to trial that will have an impact on future behavior of these financial institutions and on the meaningfulness of any settlement."