(MoneyWatch) Any good prosecutor knows the answer to their question before they ask it. Sen. Elizabeth Warren's query this week in a letter to top financial regulators is one that has, so far at least, provoked at least one predictable response.
The Massachusetts Democrat wants to know why the federal government has shied away from criminally prosecuting any major bank or banker for frauds perpetrated before the financial crisis and instead resorted to financial settlements that allow accused parties to resolve charges without admitting wrongdoing. Her latest attempt to get an answer to that question came in a letter on Tuesday to the heads of the Federal Reserve, Justice Department and Securities and Exchange Commission.
"Have you conducted any internal research or analysis on trade-offs to the public between settling an enforcement action without admission of guilt and going forward with litigation as necessary to obtain such admission and, if so, can you provide that analysis to my office?"
The answer, so far, looks to be "no." Thomas Curry, who heads the Office of the Comptroller of the Currency, one of the prime banking regulators, told Warren last week that no such research had been undertaken.She has yet to hear from the three other regulators who got the letter.
Warren's missive acknowledged that settlements, fines and other actions are important tools for prosecutors and regulators seeking to deal with financial fraud. But she reiterated that there is no substitution for the real thing -- going to court.
"I believe strongly that if a regulator reveals itself to be unwilling to take large financial institutions all the way to trial -- either because it is too timid or because it lacks resources -- the regulator has a lot less leverage in settlement negotiations," Warren wrote. "If large financial institutions can break the law and accumulate millions in profits and, if they get caught, settle by paying out of those profits, they do not have much incentive to follow the law."
Warren appears to be doubling up on her efforts to keep the heat on regulators just as Wall Street is stepping up its pressure on them to water down or abandon new financial regulations. Scores of former regulators are taking their places among a legion of lobbyists representing large financial institutions.
So far, it appears their efforts are working. The vast majority of provisions in the 2010 Dodd Frank financial reform law have yet to be codified. Meanwhile, the House Financial Services Committee has passed legislation designed to weaken the policing of derivatives, the financial products that big financial players effectively used to place huge bets on the housing market in the years leading up to, and even after, the subprime lending crash.
Indeed, in one of her first acts as the new chairman of the SEC, Mary Jo White recently backed a move to allow the foreign operations of U.S. banks to avoid domestic regulations on derivatives. To give an idea of how important such a rule might be, it was JPMorgan's (JPM) London trading unit that, through disastrous derivatives trades last year, cost the financial giant at least $6.2 billion.