Hongkong and Shanghaied

THERE are two conflicting views of American regulators’ response to the financial crisis, and to misdeeds at big banks more broadly. The first holds that Uncle Sam has gone easy on Wall Street, sparing individuals from prosecution, for the most part, and punishing institutions with nothing more serious than fines. The other contends that banks have been the victims of a capricious and unjustified shakedown, driven entirely by politics, with little opportunity for redress. A new congressional report examining one bank’s travails provides grist for both arguments. The process that led to a swingeing fine for HSBC in 2012 does indeed look arbitrary, but the government was also less severe than it might have been.

In 2012 HSBC agreed to pay American authorities $1.9 billion, admitting that it had violated sanctions against Cuba, Iran, Libya, Myanmar and Sudan, and had failed to impose tight enough safeguards to avoid handling drug money in Mexico. Some observers complained that the government should have brought criminal charges against the bank instead, even if that led to the loss of its American licence and, as a result, its potential collapse. Soon after, Eric Holder, the attorney-general at the time, who had participated in the negotiations with HSBC, told the Senate that the dire economic consequences had an “inhibiting influence” on plans to prosecute big financial firms. Later, he said had been “misconstrued”, and that decision to prosecute rested simply on whether wrongdoing could be proved.

The Republicans of the Financial Services Committee of the House of Representatives, convinced that Mr Holder had admitted that big banks were above the law, decided to investigate. Their 245-page report, published this week, concludes that big banks were indeed seen as “too big to jail”. It points to the fact that some officials in the Justice Department had recommended a criminal prosecution for HSBC, but were overruled.

Yet the report also makes clear that HSBC could never have fought the government’s charges. The Office of the Comptroller of the Currency, a financial regulator, could not provide any assurance that a successful prosecution of HSBC would not lead both to the closure of its American unit and to the revocation of its right to process transactions in dollars—a fatal outcome the bank could not risk. There was definitely political intervention: Britain’s chancellor interceded on HSBC’s behalf both with his American counterpart and with the head of the Federal Reserve, although whether this had any effect is unclear. Just how regulators arrived at $1.9 billion, or at any of the $219 billion of fines they have heaped on financial firms since the crisis, remains opaque. The report, in short, leaves everyone cross with the government—just as they were before.