Twenty years in prison is a drastic sentence, but the judge was right. Jake Butcher was the central figure in the collapse of the United American Bank of Knoxville, one of the largest banks ever to fail in this country. After that bank went under, in early 1983, regulators closed 21 other banks controlled by Mr. Butcher and his family. Mr. Butcher was sentenced after pleading guilty to fraud.
Federal Judge William K. Thomas declared that Mr. Butcher's transgressions had shaken public confidence in the banks of Kentucky and Tennessee generally. Before confidence can be restored, the judge said, people will have to be shown that the processes of justice work. A sentence of such severity in a financial crime is rare. But the enforcement of the banking laws is not to be treated as a game of wits between the manipulators and the examiners, in which the public is a detached audience watching the fun.
Perhaps, as the prosecutor commented, a new standard is being set for the punishment of this kind of crime. Perhaps courts are going to begin dealing as rigorously with fraud in the executive offices as they do with stickups at the tellers' windows. Harsh sentences for bank robbery are justified by the great physical danger to anyone unfortunate enough to be on the scene. Fraud constitutes a different kind of threat to the public but, as Judge Thomas suggested, not necessarily a less important one.
As distrust of the banking system spreads, depositors are looking for other ways to hold their money. All of the banks' dozens of routine services to the commercial world then get stickier and more expensive. The economy becomes less efficient and slows down a little. The regulators can often find someone else to reopen a failed bank. But even when the failure is an honest one, its public costs are not zero.
There have been 43 bank failures so far this year, the highest rate since the Depression. The whole banking industry is under strain. The nature of the business is changing rapidly, and not every bank's management is capable of coping with it. When the hazards of mismanagement and bad luck are compounded by fraud and theft, the public is in real jeopardy. There are values at stake here that deposit insurance doesn't cover.
Mr. Butcher had aspired to great things. While he was building his fortune and acquiring his banks, he also ran twice for the governorship of Tennessee. He was chairman of the 1982 world's fair in Knoxville and, as his lawyer told the judge, his contributions to the city ought not to be overlooked. But in the end his disservice to his city was far greater. The judge's chief responsibility, in this unhappy case, was to defend the integrity of the banking system.