Since the 2008 financial crisis, one obscure federal agency has succeeded in doing what many thought was impossible: sending bankers to prison.
The agency has charged 85 bankers from across the country with a crime over the last few years and already sent 36 to prison. The former chief executive of Virginia’s Bank of the Commonwealth, who was accused of contributing to the 2008 financial crisis through the bank’s “brazen greed and dishonesty,” was sentenced to more than 20 years.
But eight years after it was established, the Office of the Special Inspector General for the Troubled Asset Relief Program or SIGTARP, has grown frustrated. While it has succeeded in prosecuting senior executives of mid- to small-sized banks for various misdeeds, it has failed to do the same to the CEOs of large Wall Street firms.
Those executives, according to the agency, are insulated by a Wall Street culture that keeps its leaders in the dark about potential fraud. Congress should pass legislation to prevent that from happening in the future, said Christy Goldsmith Romero, special inspector general with the Troubled Asset Relief Program, who investigates crime at companies that took taxpayer bailout funds.
The proposal “is the response to our years of finding it difficult to bring accountability to some of these bank leaders,” Goldsmith Romero said in the interview. “Corporate culture should not allow crime and fraud to go unchecked.”
CEOs and other senior executives should be required to certify every year that they have conducted “due diligence” and that there is no criminal conduct or civil fraud in their organization. By requiring the executive to take steps to verify that the statement is true, it would give law enforcement a path to hold them accountable, the inspector general’s office said in its recommendation to Congress.
“If a CEO says that their institution is too big or too complex to be able to certify about crime or fraud, then they have a much bigger problem – one that should be unacceptable, particularly at banks deemed so systemic that taxpayers bailed them out,” the inspector general’s office said in its quarterly report to Congress.
The proposal comes as populist anger at Wall Street has become a rallying cry during the presidential election campaign. Last year, the Justice Department unveiled a new policy that would prioritize cases against individual company executives, not just corporations. But critics say enough still isn’t being done.
Even after Wells Fargo acknowledged it had fired 5,300 employees over five years for setting up unauthorized accounts customers didn’t want, Republicans and Democrats on Capitol Hill both questioned why the bank was fined, but its’ executives were not prosecuted. “Why shouldn’t you be in jail?” Rep. Michael Capuano, D-Mass., asked then-Wells Fargo CEO, John Stumpf, during a House committee hearing last month.
In its quarterly report to Congress, the inspector general’s office also questioned whether banks such as Wells Fargo and Charlotte-based Bank of America should continue to have access to a government foreclosure prevention program. The banks and other mortgage servicers have repeatedly broken the rules that govern the Home Affordable Modification Program, known as HAMP, according to the report.
HAMP was the Obama administration’s largest effort, by far, to help struggling homeowners after the 2008 financial crisis. So far, it has fallen far short of helping the number of homeowners hoped and, the inspector general’s office argued, the banks that participate in the program have repeatedly improperly broken the rules. Some have improperly either denied homeowners access to the program or wrongfully terminated them.
Of the $28 billion in taxpayer money allocated for the program, only $15 billion has spent so far. The rest will be doled out over the next seven years.
“Why are we paying for nonperformance? We are paying these big mortgage servicers, who violated the rules throughout the entire history of this program. At what point is somebody is going to say enough and is enough?” said Goldsmith Romero. “If a homeowner doesn’t follow the rules in HAMP they get knocked out of the program. If a bank doesn’t follow they still get paid by Treasury.”