The Washington Post

Prosecutions for bank fraud are falling

A chart from Syracuse University’s Transactional Records Access Clearinghouse shows how prosecutions for financial-institution fraud have plummeted in the last decade, reaching new lows under the Obama administration (via Economix):

Why aren’t more bankers being prosecuted, especially after the subprime mess? Jeff Madrick and Frank Portnoy offered some reasons in a recent issue of the New York Review of Books. One theory is that Congress has weakened the relevant regulations in recent years. Another is that federal officials are worried that prosecutions could undermine an already fragile economy. As one former Fannie Mae official complained to The New York Times recently, “I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”

But an even bigger obstacle, Madrick and Portnoy conclude, is that federal prosecutors seem to be genuinely reluctant to bring cases. “A central problem is that proving financial fraud is much more difficult than proving most other crimes, and prosecutors are often unwilling to try it. Congress could fix this by amending federal fraud statutes to require, for example, that prosecutors merely prove that bankers should have known rather than actually did know they were deceiving their clients.” (There’s a lot more detail in their story, which is quite readable and includes some relevant examples, but it’s too long to sum up here.)


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