Over 99% of Federal Reserve Bank Enforcement Actions Are Resolved Without Admission of Guilt (Good Grief)
http://www.nakedcapitalism.com/2012/05/o....A couple of excerpts . .
In a hearing last week titled “Examining the Settlement Practices of U.S. Financial Regulators”, various regulators tried to justify their practice of settling with financial firms and not requiring them to admit wrongdoing. In that hearing, Federal Reserve General Counsel Scott Alvarez, stated that only seven of the roughly one thousand enforcement actions taken in the last decade were resolved without consent.
The vast majority of the Federa Reserve’s formal enforcement actions are resolved upon consent, which is fully consistent with the goal of resolving supervisory concerns with bank management quickly and firmly. In crafting enforcement actions that are entered by consent, the Federal Reserve typically sets out summary recitations of the relevant facts in “Whereas” clause provisions; however, like our fellow banking regulators, it has not been our practice to require formal admissions to the misconduct addressed in our enforcement orders given the remedial nature of our enforcement program. Requiring admission of fact and legal conclusions as a condition of entering into a consent action is likely to have a deleterious effect on our supervisory efforts by causing more institutions and individuals to challenge the requested relief in contested administrative proceedings, which typically takes years to reach final resolution, and which could delay implemenattion of necessary corrective action.
In other words, the Federal Reserve will only punish banks who break the rules if those banks consent to punishment. This attitude is pervasive among all regulators. Here’s the Office of the Comptroller of the Currency, which regulates among other banks JP Morgan Chase.
Obtaining an institution’s consent to an immediately effective order helps ensure that its problems are addressed at a stage when rehabilitation is still possible, thus helping the bank avoid failure…
The longstanding practice of permitting the bank or individual to neither admit nor deny wrongdoing allows the OCC to get an enforceable order in place at an early stage of the proceeding, and encourages compliance with the enforcement action and immediate correction of any deficiencies that need to be addressed. Because consent orders are made available to the public, requiring an admission of wrongdoing would prolong settlement negotiations and increase the number of respondents who choose to litigate the merits of the action.
The argument over regulation or deregulation, in some sense, misses the point. We need regulation, obviously. But we also need strongly principled regulators. And neither Barack Obama nor Mitt Romney has any appetite for that.
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