As we mentioned this morning, UBS surprisingly capitulated yesterday to the demands of US prosecutors to release the names and account numbers of clients, breaking the centuries long tradition of Swiss banking secrecy. But what may be even more surprising is how small the fines UBS agree to pay. And now some are saying that US banking regulators may have put pressure on the prosecutors to ease up on the monetary penalties.
UBS, like many banks across the globe, faces serious balance sheet problems. It has received billions of dollars worth of funding from the Swiss government. Ironically, this means that Swiss tax payers are effectively paying the $780 million in penalties UBS agreed to pay the US government as part of its settlement.
We’re told that the prosecutors consulted with officials from the Federal Reserve, who advised prosecutors to take it easy on the Swiss bank in light of the current global economic crisis. Although $780 million may seem like a lot of money, the fines are actually far smaller than many expected. Could taking it easy on misbehaving banks be part of the global financial regulatory cooperation we’ve been hearing so much about?
Interestingly, the New York Times seems to have also have heard stories of the Federal Reserve intervening in the case but to have backed off the claim later. The first version of the Times story, which appeared only online and in the international editiions, contained the line: “The decision not to levy the additional fines and penalties was taken in light of the current global economic crisis and after Justice Department prosecutors consulted with the Federal Reserve.” Later, in the story that ran in the Times this morning, this was changed to: “People briefed on the issue said the banking crisis and the recession were factors in this decision by prosecutors.”