By James Kwak
Benjamin Lawsky’s unilateral action against Standard Chartered has apparently upset the “bigger” regulators in Washington and London. According to the Wall Street Journal, “Officials at the U. K. Financial Services Authority complained . . . that the sudden move could have damaged the stability of the bank and that the lack of advance notice breached long-standing protocol among bank regulators.”
Wait. Now how is that supposed to compared with the fact that Standard Chartered almost certainly conspired to evade U. S. sanctions?* Why are they mad at Benjamin Lawsky instead of at Standard Chartered? And when you think a violation of inter-regulator “protocol” is worse than a systematic plan to defraud the U. S. government and break sanctions against Iran, of all countries—it’s hard to imagine how you could be more captured, without knowing it.
As for the point that the sudden announcement could have threatened the stability of Standard Chartered: First, how does that compare to breaking the law in the first place? Second, if you’re worried about systemic risk, there’s a simple solution. If Standard Chartered’s equity goes to zero, the government should just buy it up and take control of the bank or, alternatively, buy new equity on favorable terms. That would put to rest any systemic concerns. And if, as the U. K. regulators claim, the bank is sound (and it should be, with that booming business in evading U. S. sanctions), then the market value will go up when the brouhaha subsides, and taxpayers will earn a profit.
Whose side are these guys on?
* See, for example, paragraphs 30–32 of the complaint, quoting from an internal manual giving instructions on how to manually override data fields to hide Iranian clients.