JPMorgan’s top lawyer fires back at regulators
Clarification: 11/22, 5:40 PM
FORTUNE — Apparently, JPMorgan Chase’s top lawyer has some hurt feelings over his bank’s recent $13 billion fine.
Stephen Cutler, speaking Friday morning at an industry conference, fired back at the government and said that the regulation of banks is spiraling out of control. He said regulators are wasting taxpayers’ resources by piling on infractions and issuing multiple fines for the same issue. He also questioned whether the current size of the fines his bank and others are being forced to pay makes sense. Earlier this week, JPMorgan (JPM) finalized terms of its $13 billion settlement with the government over mortgage misdeeds stemming from the run-up to the financial crisis.
“We should all be concerned that there doesn’t seem to be a natural end point to how high fines could go,” Cutler told the audience of bankers and regulators. “One hundred million dollars is still meaningful.”
Cutler was speaking on a panel on banking litigation and enforcement at the annual event of The Clearing House, which is a trade organization that represents that nation’s largest banks. Cutler broke the ice with saying he wasn’t sure why he was there. He then said he could think of 13 billion reasons.
Cutler said it was unfair to make the nation’s largest banks pay larger fines just because they are big. He said when he was at the Securities and Exchange Commission 15 years ago, the SEC hit IBM with a $10 million fine, which was the largest single fine at the time. That was a big deal, Cutler said. He got a lot of push-back from lawyers. Cutler, who was the head of the SEC’s division of enforcement from 2001 to 2005, says he fears the fines banks are paying now are setting a new, much higher floor.
“Issues that used to be seen as part of regulators’ normal supervisory function are now being treated as a basis for an enforcement action,” said Cutler. “Not sure how we got here.”
Cutler called for an inter-agency task force that could address the issue of regulator overlap. He said given the limited resources granted to regulators, it makes little sense for multiple regulators to be investigating the same issues. Recently, a number of observers have said the Commodities and Futures Trading Commission does not appear to have the resources it needs to enforce new rules that are supposed to make derivatives markets less risky. “In the London Whale case, we found that anytime anyone came up for questioning we got requests from seven regulators,” said Cutler. “Basically, the interviews had to be conducted in auditoriums.”
Cutler also questioned whether regulators had guidelines for when they press for admissions of guilt when settling cases, which regulators often hadn’t done in the past. But recently, the SEC and others have come under criticism in the wake of the financial crisis for allowing banks to pay large fines without actually admitting wrongdoing. JPMorgan was forced to admit that it violated securities laws in the London Whale trading blow up. In the recent mortgage settlement, the bank said it agreed with the facts included in the governments settlement. Although, those admissions are so general it’s not clear how much they will hurt JPMorgan in future legal battles.
Dan Stipano, a top official at the Office of the Comptroller of the Currency who was also on the panel, said that he thought it was clear that there should have been some admission of guilt in the case of the London Whale, but that his agency did not have a new policy of always pushing for guilty pleas. He said that “neither admits nor denies” continues to be standard language in his OCC’s settlement paperwork.
Clarification: An earlier version of this story said that JPMorgan admitted guilt in connection with its recent $13 billion settlement. In fact, JPMorgan agreed to a statement of facts as part of the settlement that said the bank regularly misrepresented the quality of the home loans in the mortgage bonds it sold investors in the run up to the financial crisis.