Reputation is crucial for bank investors

The humbling of two global banks in recent weeks has been greeted very differently on opposite sides of the Atlantic. Still, from the perspective of either side, large fines for interest rate rigging by Swiss bank UBS, and money-laundering by HSBC, point to the same conclusion: from now on, banks must protect their reputations as their most valuable asset.

On the US side, there has been considerable grumbling about the “lenient” treatment meted out to HSBC and UBS. Associations with Mexican drug cartels and Iranian militants or documented solicitation of price fixing usually attract the attention of federal prosecutors. Yet, … Read more

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Editor's Tweet: Professor John Coffee of Columbia Law School opines on the importance of reputation for bank investors

SEC enforcement: What has gone wrong?

A disturbingly persistent pattern has emerged in U.S. Securities and Exchange Commission enforcement cases that involves three key elements: (1) The commission rarely sues individual defendants at large financial institutions, settling instead with the entity only; (2) when it does sue individual defendants, it frequently loses; and (3) the penalties collected by the commission from corporate defendants are declining and, in any event, are modest in proportion to the profits obtained.

In November, the SEC sued and settled with JPMorgan Chase & Co. and Credit Suisse Group A.G. for a collective $417 million, but named no individual defendants. This continues … Read more

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Editor's Tweet: Professor John C. Coffee Jr. of Columbia Law School opines on the problem of SEC enforcement. Could the private bar be a solution?

The Political Economy of Dodd-Frank

For a number of years, commentators have noted that securities “reform” legislation seems to be passed only in the wake of major stock market crashes, with this pattern dating back to the South Sea Bubble. Some have argued that this pattern demonstrates the undesirability of such legislation, arguing that laws passed after a market crash are invariably flawed, result in “quack corporate governance” and “bubble laws,” and should be discouraged. Recently, this criticism has been directed at both the Sarbanes-Oxley Act and the Dodd-Frank Act. The forthcoming Cornell Law Review article, The Political Economy of Dodd-Frank: Why Financial Reform Tends Read more

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Editor's Tweet: Professor John C. Coffee, Jr. of Columbia Law School discusses why financial reform tends to be frustrated and systemic risk perpetuated