$56bn in bank fines equals $1.1tn less in bank lending…minimum

If you take that 5% capital (equity) leverage ratio they want to impose on banks in the US (in Europe only 3%) that signifies an allowed leverage of 20 to 1.

In this respect when Martin Arnold reports on December 27 “Penalties for lenders leap to record $56bn”, and as these penalties go against equity, I read $1.1tn less in bank lending… minimum... and this 2014 only... judicial masochism!

With all the QEs and other stimulus efforts going on; and all the increase of capital requirements for banks going on, the question remains: why on earth were these fines not forced to be paid out in fully paid in voting shares to be resold to the market?

Current bank fines paid in cash is judicial masochism. Fines should instead be paid in voting shares.

Sir, I very much agree with Daniel Zuberbühler’s in that a much more constructive way of sanctioning the banks for misdeeds would be to increase their capital requirements, “In banking capital punishment works better than torture”, July 3. Clearly to punish banks with bribes that go against their capital, precisely when we most need them to be better capitalized so as take on their lending functions, amounts to something like judiciary masochism.

But if populist prosecutors insist on taking that route then I have also proposed sometime ago that the fines should paid by having the perpetrator issue voting shares… which the government needs to unload in the market within a specified period. That would indeed be a better way to punish what needs to be punished, without punishing ourselves.

Banks should pay all fines by issuing voting shares.

Sir, I refer to Kara Scannells’and Stephen Foley’s “Credit Suisse to pay $2.6bn in tax case” May 20 and to all other reports about bank fines.

All these fines go against bank’s capital accounts, and will therefore, because of bank capital requirements, cut down on the credits a bank can give.

And that hurts mostly the innocent… those who will now not get a credit because the bank does not have the shareholders’ equity to back it up with.

The only way out of it is to force all bank fines to be paid by the issuance of bank voting shares, at their current market value, for an amount equivalent to the fine.

To do elsewise is, as I see it, only statist sadism.