It Turns Out Too Big to Fail Does Not Mean Too Big to Jail

Hate those banks which are deemed "too big to fail?" The Attorney General wants you to know that doesn't mean they're too big to jail.

In his weekly video, the Attorney General of the United States, Eric Holder, opened by saying bluntly:

There is no such thing as too big to jail.

The natural question becomes, what does this mean to Bank of America (NYSE: BAC  ) , JPMorgan Chase (NYSE: JPM  ) and the other big banks?

Source: Flickr / Ryan Wick.

Supreme remarks
Holder when on to highlight that some believe banks which engage in criminal activity are "immune from prosecution due to their sheer size and their influence on the economy." But he noted such an idea is simply mistaken. He reiterated no matter how large or profitable a bank or individual is, no company is "above law."

The Justice Department is reportedly in the midst of pursuing a guilty plea from France-based BNP Paribas for operating in nations which have been marked by financial sanctions from the U.S., including Iran, Cuba, Sudan, and others.  

In addition, Credit Suisse (NYSE: CS  ) is now the focus of an investigation surrounding whether or not it helped more than 20,000 Americans evade American taxes. In total, Bloomberg reports 14 Switzerland banks are under criminal investigation as to whether or not they knowingly allowed Americans to avoid paying taxes. 

The biggest banks
Of course when Americans think of too big to fail, their minds are immediately drawn to some of the largest institutions, like Bank of America and JPMorgan Chase, which combined have more than $4.5 trillion in assets.

Yet the recent remarks from Holder shouldn't come as a surprise.

Remember it was just August of last year when the SEC and Department of Justice went after Bank of America related to fraud from mortgage bonds it issued in 2008. In the announcement the co-director of the SEC's division of enforcement, George, Canellos said scathingly: 

In its own words, Bank of America 'shifted the risk' of loss from its own books to unsuspecting investors, and then ignored its responsibility to make a full and accurate disclosure to all investors equally. This is one in a long line of RMBS-related enforcement actions brought by the SEC to hold entities accountable for wrongdoing connected to the financial crisis.

Just a few days later JPMorgan Chase revealed in its quarterly SEC filing it was "responding to parallel investigations," from the Attorney's Office in the Eastern District of California, and was facing criminal and civil investigations into its alleged wrongdoing during the mortgage crisis.

And in January of this year in its $2.6 billion settlement related to its ties to Bernie Madoff, JPMorgan Chase deferred its criminal charges until 2016 provided it meets certain controls. 

While the thought of the banks facing criminal charges is unnerving, it's vital to know such reports aren't new, and they all relate to their actions in the years before the tumultuous financial crisis.

The key takeaway
Such reports are critical to monitor, and can be a cause of great concern for investors. While we do not know what the investigations will bring, when taking the glass half full perspective, one can only hope the words of Holder will result in banks doing all they can to ensure the mistakes made in the past will never be repeated.

Big banking's little $20.8 trillion secret
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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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