Sens. Warren, Shelby: Criminal bank execs should face arrest

A bipartisan duo indicated Tuesday that there is broad interest in seeing the government punish individual bank executives, and not just their institutions, for criminal wrongdoing.

Sens. Elizabeth Warren (D-Mass.) and Richard Shelby (R-Ala.) both expressed concern that actions tied to the financial collapse have resulted in fines and settlements but not arrests, suggesting the Senate Banking Committee will be an aggressive force no matter which party controls it after November.

{mosads}During a hearing with financial regulators, both said that, while the Justice Department has extracted tens of billions of dollars from big banks for misbehavior leading up to the meltdown, they dropped the ball by not pursuing criminal cases against the executives running those banks.

“No corporation can break the law unless the individual within that corporation broke the law,” said Warren. “Not a single senior executive at these banks have been criminally prosecuted.”

Warren has been a longtime advocate for harsher penalties for individual executives, and Shelby jumped into her corner following her remarks.

While he focused much of his criticism on President Obama’s Justice Department, Shelby, too, said it’s only reasonable to expect executives to face charges as well.

“Something’s wrong with the Justice Department. People shouldn’t be able to … buy their way out of culpability,” he said. “I agree with her on that.”

The comments from Shelby are particularly significant. If Republicans take control of the Senate, he is in line to take over the Banking panel as chairman. Shelby previously served as the ranking member on the committee before reaching his term limit at the end of 2012.

He is currently the ranking Republican on the Appropriations Committee, but that gavel is expected to go to Sen. Thad Cochran (R-Miss.) if the Senate flips. That would move Shelby back to lead the Banking Committee, where he would bump aside the current ranking member, Sen. Mike Crapo (R-Idaho).

Warren has long been a big bank critic from the left, and while Shelby is one of the chamber’s more conservative members, he also has been known to criticize the institutions from time to time.

Shelby’s comments suggest that the Banking Committee could end up with a bank critic no matter which party controls the Senate. Sen. Sherrod Brown (D-Ohio), a vocal bank critic, could take over as the next top Democrat on the panel, replacing retiring Sen. Tim Johnson (D-S.D.).

The Justice Department has racked up several multibillion dollar settlements with the biggest names in banking for their roles in the financial crisis.

Most recently, Attorney General Eric Holder announced a record $16.6 billion settlement with Bank of America, charging it defrauded investors by selling them securities loaded with risky mortgages. The bank admitted to wrongdoing as part of the settlement.

Holder was quick to point out that the settlement does not preclude future charges against individuals, but six years after the collapse, lawmakers like the two senators are still waiting for results.

“If you steal $100 on Main Street, you’re probably going to jail. If you steal a billion bucks on Wall Street, you darn well better go to jail, too,” said Warren.

At Tuesday’s hearing, Warren asked the regulators gathered if any had referred any specific executives to the Justice Department for criminal prosecution. No regulator volunteered that they had, but Federal Reserve Governor Daniel Tarullo said the regulators provided all relevant information for each particular case.

“We’ve shared all the information that the Department of Justice needed. I think the Justice Department has probably made its own assessment,” he said.

The discussion came amid a hearing devoted to the continued enactment of the Dodd-Frank financial reform law. Regulators said they had finished or were close to finishing nearly all of the major provisions of that 2010 law, and now are turning their efforts to enforcing those rules and monitoring their effectiveness.

At the hearing, both lawmakers and regulators suggested the next Congress could begin a debate on revisiting Dodd-Frank and make some changes, both technical and more substantive.

Tarullo told lawmakers they should consider changing the law to provide more exemptions from its requirements for small banks. And Sen. Mark Warner (D-Va.) said the time might have come for a “fix-it” bill tackling the Wall Street overhaul.