Is it in the interest of senior bankers to violate the law?  William K. Black writes:  The parent organizations of five of the world’s biggest banks will plead guilty to rigging global currency markets rattled the financial markets. But it also raised concerns about whether fines and settlements are effective deterrents to fraudulent behavior.

The five banks will pay the U.S. Justice Department and the Federal Reserve fines totaling $5.6 billion as they agreed to plead guilty to colluding to manipulate currency and interest rate markets. Yet, they could continue to do business as usual, thanks to settlement terms and waivers against stiffer actions from the Justice Department and the Securities and Exchange Commission (SEC).

At  UBS, the latest case is the third act of rigging it has confessed to in the last five years. “The only thing that could save UBS is to have a crackdown by somebody external that gets rid of this assorted group of managers.”

Here is a snapshot of what the four banks detailed in their plea agreements, according to a U.S. Justice Department press release: “Members of ‘The Cartel’ manipulated the euro-dollar exchange rate by agreeing to withhold bids or offers for euros or dollars to avoid moving the exchange rate in a direction adverse to open positions held by co-conspirators. By agreeing not to buy or sell at certain times, the traders protected each other’s trading positions by withholding supply of or demand for currency and suppressing competition in the FX market.”

The foreign exchange and Libor bid-rigging cases individually are the largest cartels by three orders of magnitude in world financial history.

Here is how the fines add up to $5.6 billion: The banks will pay $2.5 billion in criminal penalties for manipulating currency rates, plus another $1.6 billion in fines payable to the Federal Reserve. The remainder will come from penalties of $1.3 billion that Barclays will pay U.S. and British regulators and $203 million that UBS will pay for manipulating interest rates.

The whiff of big money is a factor to think about for regulators.  said Nichols.  The amount of money that moves through the foreign exchange market in one day is almost twice the value of the economic output of the U.K. in one year.

U.S. regulators protect bankers from winding up in jail.  Banks negotiate in advance that a guilty plea will not be what a guilty plea would normally be.

Was stronger action was warranted in the case of UBS?  Should banks secure waivers against stern action. “The rule with large banks is that the SEC always waives – it doesn’t matter how bad [the violations are],” he said. “This is a serial recidivism.” He noted that one SEC commissioner is working to prevent routine waivers that the SEC grants.

Possible remedies:  Put a fraudulently controlled bank in receivership.  Receivership should probably be an option only for banks that seem irredeemable, and it might make more sense for most banks to just create a better internal culture.

Unlike with bribers, bankers do not face the risk of imprisonment. The material rewards for violating the rules and the trust of clients are huge, while the risk is almost nonexistent.