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Is HSBC Really ‘Too Big to Jail’?

By Bartlett Naylor

In December of last year, HSBC (HBC) admitted to money laundering violations covering $200 trillion worth of transactions involving Mexican and Columbian drug cartels, groups allegedly aligned with terrorist organizations, sanctioned nations and others. The U.S. Department of Justice (DOJ) explained it could not exact a penalty greater than one month’s profits against HSBC because doing so would cause systemic repercussions to the financial system. In shorthand, HSBC was “too big to jail.”

On March 6, U.S. Attorney General Eric Holder affirmed the “too big to jail” policy:

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large."

How did Attorney General Holder make this assessment? Did he consult with government banking experts? On March 7, Sen. Elizabeth Warren (D-Mass.) asked three high-ranking officials at a U.S. Senate banking committee hearing (see beginning at 1.22 hour) if they would advise DOJ that HSBC could not be penalized further owing to systemic threats.

David Cohen, Undersecretary for Terrorism and Financial Intelligence with the Treasury Department: “We told Justice that we weren’t in a position to offer any meaningful assessment” of taking various courses of action.

Jerome Powell, member of the Federal Reserve’s board of governors: “There were conversations, but that question wasn’t asked or answered. The questions were about this or that statute.”

Thomas Curry, Comptroller of the Currency: “The only question that Justice asked us was about the charter revocation ... Our position was that this was a criminal justice decision."

For context, Sen. Warren followed a theory that Public Citizen advanced in January when we sent letters to the Federal Deposit Insurance Corp and the Maryland Attorney General asking them to terminate HSBC’s insurance and forfeit the company’s charter respectively. (HSBC’s American operations are incorporated in Maryland.)

Our goal with these letters, ultimately, is to force our financial policy makers and any others willing to confront reality to use their authority, given to them by the Dodd-Frank Wall Street Reform and Consumer Protection law, to break up the banks. The financial crash of 2008 demonstrated the enormous expense taxpayers incur when banks become gambling operations with an understanding that their winnings will be privatized, and losses socialized. The HSBC case sharpens the problem that banks of a certain size can actually engage in criminal activity with essential immunity.

Many sensible regulators and members of Congress now recognize that mega-banks are too large and the number that say they should be broken up is large, growing and bi-partisan.

And now this list includes the nation’s leading law enforcer: Attorney General Holder: “Some of these institutions have become too large."

Apparently, Attorney General Holder did not need any regulator to tell him that some banks have become too large. It’s obvious.

Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch division. Follow him on Twitter at @BartNaylor.