What Are Regulatory Penalties?

In recent years, banks have been slapped with a number of high-priced fines that have put a dent in their not only their own pocketbooks, but their reputations. In fact, Reuters points out that by 202, banks will top more than $400 billion in penalties due to regulatory infractions.

Most of these fines have been related to misleading investors about the underlying quality of the mortgages they packaged together into bonds during the previous housing bubble, putting all banks on notice for their lending practices. It’s important for people to know what these regulations are and how they affect the banks that are fined, especially when consumer confidence in banks is a little testy given the recession that hit a decade ago.

By the Numbers

Bank of America tallied a mark of $76 billion in fines over the last 10 years, followed by JPMorgan Chase at $44 billion, and a handful of other well-known institutions, each garnering more than $10 a piece.

The reason why these banks are getting hit with high fines is due to the fact that since the last financial crisis, the government is keeping a sharp eye on how they operate. New rules and laws are being imposed on how banks run their business, helping to look out for the consumer. With new rules and stricter laws set in motion, banks have been aggressive in returning the money that they owe, even with the massive size of their fines.

Regulations and Overlooks

Earlier this year, U.S. Bancorp agreed to pay $613 million in penalties to state and federal authorities for violations of the Bank Secrecy Act and a faulty anti-money-laundering program. U.S. Bank disclosed it was setting aside a whopping $600 million related to an expected enforcement action by regulators.

The reason why the bank and others like it are being hit with these fines is because, as mentioned above, the federal government has implemented stricter compliance laws. Banks who are fined large amounts usually have systemic deficiencies in things like anti-laundering monitoring systems, resulting in gaps and unreported suspicious activity. This puts everything on notice and under a closer microscope. Failing to comply with new laws and tighten up policies can result in a full-scale investigation.

Banking Coverage

Banks are doing their best to come clean, own up to their oversights and pay back what they owe. One way the financial element of a legal situation can be aided is with the safeguard of a Bankers Liability policy that backs up financial institutions in the event that legal aid is needed.

A Bankers Liability policy protects financial institutions against claims such as wrongful acts or errors and omissions in services rendered to customers. But while having this kind of coverage in step is a good rule of thumb, it also pays to be aware of the severity of the regulatory field banks are part of.


About Financial Guaranty Insurance Brokers

Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.