Tags: government | bank | fine | markets

Bank Fines Punish Free Market and Shareholders

By    |   Friday, 22 May 2015 01:06 PM

This week, banks were fined between $5 billion and $10 billion by regulators for manipulating foreign exchange markets. News reports about the fines differ on the specific amount, but most agree that the settlements are large and will have little, if any, impact on the way the banks operate today.

Since the financial crisis, big banks have paid nearly $200 billion in fines, according to one estimate. That's $200 billion banks didn't spend on creating jobs or improving operations for the future.

Fines largely go to offset government deficit spending. They represent a transfer of money from the private sector to the government without public debate about a tax increase. They allow for extra spending without debate about where limited government resources should be spent. They help keep interest rates low by reducing the supply of government bonds that would be issued to spend an extra $200 billion.

Government regulators have simply taken $200 billion out of the economy. Even after the large punishment, banks continue to make money. They are just not able to invest in their future or pay larger dividends to shareholders.

Do banks deserve to be punished for manipulating foreign exchange markets? If the government published all of its evidence, the free market would punish wrongdoers. Investors would "vote with their feet" and demand an end to truly corrupt practices. This would improve market transparency but would not generate headlines for prosecutors with political aspirations.

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MichaelCarr
This week, banks were fined between $5 billion and $10 billion by regulators for manipulating foreign exchange markets. News reports about the fines differ on the specific amount, but most agree that the settlements are large and will have little, if any, impact on the way the banks operate today.
government, bank, fine, markets
239
2015-06-22
Friday, 22 May 2015 01:06 PM
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