On May 20, after years of paying fine after fine to settle civil actions, the big banks’ bad behavior reached a new legal and moral low: The Department of Justice announced that four major banks — Citigroup, JPMorgan Chase, Barclays and Royal Bank of Scotland — agreed to plead guilty to felony criminal charges and pay $5.5 billion in fines for conspiring to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange spot market. Attorney General Loretta Lynch observed that the banks engaged in a “brazen display of collusion.”
In addition, a fifth bank, UBS, agreed to plead guilty to manipulating the London Interbank Offered Rate (LIBOR) and other benchmark interest rates after breaching its December 2012 non-prosecution agreement resolving the LIBOR investigation. The LIBOR affects consumer credit cards, student loans, home mortgages and much more. According to the Department of Justice, the conspiracy fixed the U.S. dollar-euro exchange rate, affecting currencies that are central to international commerce. This conspiracy undermined the integrity and the competitiveness of foreign currency exchange markets which account for hundreds of billions of dollars worth of transactions every day.
The behavior of these banks is grossly offensive. Even years after the financial crisis and all the criticism, investigations and increased regulation, Wall Street still suffers from a culture of criminality. One trader was quoted as saying, “the less competition the better.” A Barclay’s vice president was caught saying “If you ain’t cheating, you ain’t trying.”
The response to the latest massive crimes: not much. The stock price of these companies continues to rise, and once again, unlike the millions of people who get caught stealing a fraction of what these banks stole, no one appears to be going to jail.
When banks plead guilty to a crime, we must do more than shrug and move on. The actions of these banks pose risks to investors and the public. Until they prove otherwise, I do not believe that these banks should be trusted with public funds. In my role as Santa Cruz County, California, supervisor, I am entrusted to set an investment policy that protects the public’s tax dollars. I feel strongly that no county should be involved with those who rigged the world’s biggest financial markets. It is important that we send a message that if you want to do business with local and state governments, you need to play by the rules.
At my urging, the Santa Cruz County Board of Supervisors voted to modify the county’s investment policy to reflect that our county will not do new business — such as using investment services, or buying commercial paper or bonds — with these financial institutions for five years. We also ordered the county to unwind existing relationships with these five banks to the greatest extent feasible. The county’s investment pool has a portfolio with a value of approximately $650 million.
These policy decisions are consistent with governmental practices in other arenas. We require those who bid for contracts to be “responsible and responsive.” Under this standard, we would not hire a firm to build a community center, repair a water main or even chlorinate our public pool if it had just pleaded guilty to federal criminal charges. Our financial partners should at least meet the same standard for responsibility — which, let’s be honest, is a very low bar.
While the loss of Santa Cruz County’s investment pool alone may not have a major impact on Wall Street, I am actively reaching out to other local progressive jurisdictions across the country to urge other institutions and local governments to consider taking similar action. We’ve already heard back from half a dozen elected officials and hundreds of citizens who are urging their local governments to implement a similar policy. Perhaps the loss of public sector business will finally curb the illegal and immoral behavior by Wall Street that regulation and shame have thus far sadly failed to stop.