Too big to fine? Why banks don't pay the price when they break the rules

RTÉ News​

2 days ago

Analysis: New research finds the impact of misconduct, criminal activities and serious infractions on large banks is far milder than on other firms
By Catarina Marvão, UCD
In May 2025, Credit Suisse Services AG admitted that it helped wealthy US clients hide more than $4 billion from the US tax authorities (IRS), by using at least 475 offshore accounts. This follows many other infractions involving Credit Suisse in the last few years (e.g. the spying scandal in 2020, the Greensill, Archegos and Mozambique scandals in 2021, the Suisse Secrets case and money laundering in 2023), leading to it being acquired by UBS in 2023.
Credit Suisse agreed to pay a fine of $510 million, including $372 million for filling false tax returns and $139 million related to accounts based in Singapore. In addition to the gravity of this crime, it also violates the 2014 plea agreement under which Credit Suisse had to pay $2.6 billion for the same tax crimes. This was clearly insufficient if the bank continued the same crime.
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But despite having the authority to disqualify banks involved in criminal activities from providing certain financial services, the US Securities and Exchange Commission (SEC) granted Credit Suisse an exemption. Even after a long history of misconduct, this meant specific UBS-affiliated entities were still allowed to continue their investment advisory and underwriting operations.
Over the last decade, many large banks have been convicted for money laundering (e.g. HSBC, Danske Bank, UBS, Deustsche Bank), collusion (e.g. Barclays, Citigroup, RBS, HSBC), ponzi schemes (e.g. JPMorgan Chase), but faced minor legal consequences relative to the seriousness of the charges. The question practically begs itself: are some banks too big to fine?
A new study suggests the answer may well be yes. This research examines publicly listed companies, including 25 banks, fined by the European Commission for cartel participation. Using stock market data, the study shows how the share prices of these firms reacted to two key events: the start of an investigation and the announcement of a fine.
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The results are striking. When non-banks were raided, their share prices dropped significantly. That's what you'd expect—bad news leads investors to worry about future losses. But banks? Their share prices hardly moved, and in some cases appear to actually have gone up. And it gets worse. While both banks and non-banks saw their share prices fall when fines were finally announced, the study finds that the overall impact on banks was far milder.
Why do markets react so calmly when banks are caught?
One hypothesis is that investors correctly assume that banks—especially large, systemically important ones—will be let off more lightly than other firms. And they're not wrong. Even after adjusting for how much harm was caused by the cartel activity, the above study finds that fines imposed on banks were substantially lower than those handed out to non-banks.
What does this tell us about the financial system?
This reflects a deeper issue at the heart of financial regulation: the fear of destabilising the banking system. Regulators may worry that they could weaken its balance sheet if they hit a major bank with a large fine. This would undermine public confidence and risk broader financial instability. That fear becomes especially acute when a bank is already on shaky ground, as many were during and after the global financial crisis.
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It means regulators face a dilemma: punish bad behaviour properly and risk a crisis or go easy and preserve financial stability, at least in the short term.
This dilemma isn't just theoretical. We've seen it play out repeatedly. From the LIBOR-rigging scandal involving major global banks to the FOREX cartel and the Credit Suisse case this year, there's a clear pattern: financial institutions often walk away from major breaches with relatively small penalties and few long-term consequences.
Too big to fail or too big to fine?
Maintaining financial stability is a good thing, so why is this worrying? Firstly, it creates a perverse incentive. If being " too big to fail" also means being " too big to fine," then banks may actually have a reason to grow larger, take on more risk and misbehave —knowing they'll be shielded from the full consequences.
When rules only apply to some, trust breaks down for everyone.
It also undermines the idea that no one is above the law. If banks are effectively protected from full accountability, what incentive do they have to play fair? It also damages public trust in both the financial system and the regulators who are supposed to keep it in check.
So, what can be done?
One solution is to simply increase fines, relative to the actual harm caused. This is feasible as many fines are set far below the legal maximum, but it may undermine financial stability. Another option is to impose personal penalties on executives. If banks as institutions are too sensitive to fine heavily, then perhaps the individuals responsible for misconduct should face consequences—through disqualification, bans, clawbacks, or even jail sentences. However, it appears that the system is going in the opposite direction ('too big to jail').
Finally, regulators may want to communicate why certain decisions are made. If the public understands the risks behind a lighter penalty, they may be more willing to accept it—provided there is a plan to prevent repeat offences.
The Credit Suisse case may be just the latest example of banks avoiding serious punishment, but it shouldn't be treated as business as usual. Because when rules only apply to some, trust breaks down for everyone.