Ed. Note-I received the attached guest blog post. I certainly found it interesting that in the UK there might be a view of Ben Lawsky and Eric Holder as heroes for their fights against the banking industry. So presented for your Friday consideration: Do they deserve to be called heroes?

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Eric H. Holder and Benjamin M. Lawsky are names that you may not be familiar with, yet they’re fast becoming known as banking’s most feared men. Together, the men have issued numerous multibillion dollar fines to US and international banking institutions who have been accused of illegal or irresponsible actions.

Eric H. Holder worked as a United States Attorney before serving as a judge for the Superior Court of the District of Columbia. In 1997, he became Deputy Attorney General under the Clinton administration, and was elected as the country’s first African American US Attorney General in 2009, working under the Obama administration.

Like Holder, Benjamin M. Lawsky began his career as a United States Attorney, before becoming Chief Counsel to Senator Charles E. Schumer in Washington DC. However, Lawsky really made a name for himself back in 2011 when he became New York State’s first Superintendent of Financial Services. Lawsky is commonly referred to as a ‘Wall Street Cop’.

What Are Holder & Lawsky Aiming For?

Holder and Lawsky, although frequently grouped together due to their similar roles as the new ‘heroes of banking’, have taken different focuses in terms of bringing regulation back to the financial world. Holder has shown a dedication to many US and global banking institutions’ potential contribution to the 2009 financial crisis, which only recently has shown signs of recovery. The recession has had a significant impact on people all around the world, and Holder believes that the actions of major banks – trusted institutions – may have contributed significantly to the crisis. Holder has been focusing his attention on banks that may have concealed valuable information from investors at the time, and who demonstrated an ignorance of the market despite ongoing warnings regarding the state of the economy.

Lawsky, on the other hand, as Superintendent of Financial Services for New York, is more focused upon the lack of financial regulation not only within New York, but across the United States. It’s no secret that many regulators and Government officials have become what some might describe as ‘corrupt’, or, at the very least, consumed by the industry (evident in the fact that many illegal schemes already uncovered have been in place for decades and have apparently gone unnoticed until now). Currently, many financial institutions do not have anti-corruption policies in place, blamed on the unclear expectations of regulators. Even in terms of regulators who have been working above board, reports suggest that federal agents have acted too slowly to make a difference. One of the main reasons Lawsky has made such a name for himself is because he ‘went rogue’ and filed his own paperwork against banks.

What both Holder and Lawsky want is for illegal activity to be as it should be – illegal. However, they also want individuals to take responsibility for their actions. As Lawsky says, “If a bank commits a criminal act or if a bank commits serious regulatory violations, someone within that bank did it. The corporation is an inanimate thing”. This is reflected in Lawsky’s previous behaviour – although he has threatened multiple times to strip a bank of its licence, he is yet to do so.

Previously what has Lawsky done – is this a sign of what is to come in future years? Essentially is it possible that his past actions, which have not been followed through, represent what course of action he plans to take in the future. 

How is the Financial World Set to Change?

Between them, Holder and Lawsky have already made some dramatic changes to the financial world, uncovering numerous money laundering schemes and encouraging banks to admit to irresponsible behaviour. So far, we’ve seen Holder get Citibank to pay out $7 billion for approving mortgages to poor credit applicants prior to the financial crisis, we’ve seen Credit Suisse’s’ 20 year tax evasion scheme come to light, and we’ve seen Lawsky collect the largest lump sum settlement in the history of NY regulators, with Standard Chartered paying out $340 billion in relation to $250 billion worth of illegal transactions disguised as just $14 billion.

Is Lawsky more of a threat than Holder?

Is Holder playing it safe by going after banks that concealed valuable information from investors?

Is Holder focusing on the lesser threat of concealment, rather than greater threat of lacking AML systems in banks?

Is Lawsky looking to make examples out of banks rather than punish them criminally and/or ruin their business/reputation?

The actions of Holder and Lawsky aren’t expected to transform the financial world instantaneously. Instead, small changes are expected at first, such as alterations in life insurance deals to prevent ‘shadow insurance’ – where companies are using funds for multiple purposes and not retaining enough to repay clients. Bigger changes are to be expected in the long term (such as?). Lawsky acknowledges that some schemes are very well hidden, but become more transparent over time. The effects of Holder and Lawsky are anticipated to be evident for decades.

Some additional questions for your consideration. 

• Are the punishments harsh enough?
  • Fines vs. criminal charges/damage to business

Heroes?

• Lawsky more so than Holder – going out on his own, taking matters into his own hands – unafraid to fight for what is right
  • Holder working alongside DoJ – does he have free reign to take action on the banks or does he have to be abide by the DOJ’s rules and regulations. Resulting in reduced punishments for the corporations?