[StBernard] Barney Frank statement about prosecutions of financial institutions for misconduct of firms they acquired at federal urging.

[Westley Annis]

Since when does Barney Frank show an ounce of common sense?

-----Original Message-----

Frank Critical of Prosecuting Firms for Misdeeds of Smaller Companies
Acquired at Federal Urging

 

Congressman Barney Frank today issued the following statement calling on
federal and state officials to reconsider decisions to prosecute financial
institutions for wrongdoing committed by smaller institutions which the
larger institutions absorbed at the urging of federal officials during the
financial crisis.  A recent example is the decision by New York Attorney
General Schneiderman along with members of the federal-state task force to
take action against J.P. Morgan Chase for potentially criminal acts by Bear
Stearns before it was acquired by J.P. Morgan Chase in March 2008. 

 

Having been Chairman of the House Financial Services Committee at the time
that this occurred, I know that J.P. Morgan Chase acted at the strong
request of the Federal Reserve and the Secretary of the Treasury during the
Bush administration.  The Federal officials involved believed that the
failure of Bear Stearns would have terribly negative consequences for the
economy, and they urged J.P. Morgan 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.  The decision now to prosecute J.P. Morgan Chase because
of activities undertaken by Bear Stearns before the takeover unfortunately
fits the description of allowing no good deed to go unpunished. 

 

This does not mean that there should be impunity for those in various
financial institutions who misbehave, but the remedy should be to pursue
those individuals rather than the institutions for which they worked, when
the only thing that remains of the institution is the larger entity which
absorbed the smaller one at the request of the federal government.  I
believe a similar rationale applies to Bank of America, which undertook a
takeover of Merrill Lynch in part because federal official urged it to do
so.  

 

This does not mean that there should always be immunity.  I am aware of no
federal urging that led CEO Ken Lewis of Bank of America to take over
Countrywide, and it is entirely appropriate for the bank to be pursued on
that account.   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.


To repeat, my request for reconsideration of these decisions applies only to
those extraordinary cases in which top regulators pressed financial
institutions to absorb smaller, troubled entities.   I am not calling for
any change in procedures by the FDIC or other front line regulators used in
the normal course of liquidating failed institutions under its jurisdiction.


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