Banks remain immune to harsh fines

So when is a bank being punished too harshly? The plethora of nine and even 10-figure fines for manipulating markets in recent times is such that bankers and even the public have become somewhat immune to the scale of the some of the financial penalties being handed down to leading banks around the world.

Maybe that was why the news that France was going on the offensive over reported proposals to fine its largest bank, BNP Paribas, as much as $10 billion over its sanctions busting transactions involving Iran and Sudan, came as a surprise.

President François Hollande stated publicly his intention to buttonhole US president Barack Obama over a move which, he said, was “disproportionate”. Obama has said he will not intervene to protect the French bank.

It turned out later that the $10 billion figure was itself a moderation of an original $16 billion threat designed to introduce a sense of realism to executives at BNP Paribas who had considered their transgressions – if any – as worthy of a fine closer to the $1 billion mark.

Hollande’s concern was that the bank’s capital ratios might be damaged.

And so they should be. Otherwise what prospect is there of the bank taking any financial penalty – or the prospect of such – seriously.

That’s part of the problem. It has become crystal clear in recent times that banks are almost immune to fines, not least because, with so many banks under investigation, there is certain comfort in numbers.

A clearer insight to the mindset of banks came in the US-sourced legal advice that BNP used to plead mitigation. Essentially, the bank said, it had been advised that it would be perfectly okay to engage in sanctions-busting without fearing US censure, as long as none of its US-based staff was engaged directly in the activities.

The increasing, if recent, trend towards the use of criminal, rather than civil, indictment – including in the case of BNP – is a sign of the frustration in even the most powerful regulatory agencies at the failure of banks to face up to the need for a fundamental reworking of how they carry on business.

Until they do, it’s hard to see that they are being punished harshly enough.