The way banking laws are written, a bank should not be involved in crime at all. In practice, regulators are reluctant to withdraw the banking license of a bank that appears to be knee-deep in a criminal enterprise. Often regulators are content to just order banks to clean up their acts. In the more egregious cases, individual employees may be barred from future employment in banking, but the bank’s liability is limited to regulatory penalties that are rarely much larger than the bank’s ill-gotten gains.
But there are cases that can cause a banking license to be revoked, as we saw during Thanksgiving week when First Bank of Delaware agreed to shut down to settle a series of federal actions. The FDIC and Financial Crimes Enforcement Network found that the bank’s internal controls were not sufficient to prevent it from being involved in systematically fraudulent transactions. The Justice Department was pursuing a related court case against the bank. The bank agreed to pay $15.5 million, including $15 million in penalties and a $500,000 trust fund to reimburse customers whose deposits were stolen.
The specifics are hard to piece together, as they often are when cases are settled, but it looks like the bank sought out customers whose business model was based on forged e-checks, then went to some trouble to avoid discovering the magnitude of the fraudulent transactions. The Justice Department said the bank “originated more than two million debit transactions — worth more than a hundred million dollars” for these customers. The $15 million in monetary penalties, then, would be larger than the transaction fees the bank collected for criminal transactions, but not necessarily much larger. It is the loss of the banking license, which was revoked by state banking regulators in coordination with the settlement, that is the larger penalty.
The lesson would seem to be that a bank that compromises the integrity of the financial system will be dealt with more harshly than one that merely acts as an agent for smugglers and military enemies. Even criminals and tyrants need bank accounts, but if a bank’s activities are illegal and are also an active threat to the banks around it, then it seems its banking license is fair game.
First Bank of Delaware transferred its deposits and about $80 million in assets to Bryn Mawr Trust Company, a small bank based nearby in Pennsylvania, with a subsidiary in Delaware. The bank’s remaining assets were transferred to a liquidation trust, for eventual distribution to stockholders.
Corruption has been a major theme in the ongoing transition of power in China’s ruling party, with the party trying to shake a growing popular perception that it is corrupt through and through. Among the changes are new regulations limiting some forms of fringe benefits for bank executives. Banks in China have long paid living expenses, at a shockingly extravagant level, for their top executives, and the new rules will largely eliminate that. Rules that already limit the money that state-owned banks can spend on executive cars will now also apply to jets, yachts, houses, and the like. Related new rules limit the style and scope of entertainment that banks can buy. The new rules go into effect in December.
State regulators in Vermont closed Border Lodge Credit Union, which had 1,097 members. It was a very small credit union with only one regular employee. The FBI had been investigating the credit union after a routine examination by state officials raised concerns about its operations. The NCUA will be liquidating the credit union, but has said it could take as long as two weeks to verify the deposits and make payments to the members.
