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The $4.3 Billion Shrug

LONDON – In November, the United Kingdom’s Financial Conduct Authority (FCA) announced a settlement in which six banks would be fined a total of $4.3 billion for manipulating the foreign-exchange market. And yet share prices barely reacted. Why?

The nefarious practices and management failings uncovered during the yearlong investigation that led to the fines were shocking. Semi-literate email and chat-room exchanges among venal traders revealed brazen conspiracies to rig the afternoon exchange-rate “fix” for profit and personal gain. Senior managers were so disengaged that they allowed their employees to act like vulgar, overpaid children. Using nicknames like “the three musketeers” and “the A-team,” they did whatever they liked, at an enormous cost to their institutions.

But, despite the huge FCA fine, no top executive was forced to fall on his or her sword, and investors did little more than shrug. One reason, of course, is that the settlement was known to be coming; only the details of the offenses and the scale of the fines were news.

The more important reason, though, is that even $4.3 billion is small change when compared to the total fines and litigation costs incurred by the major banks over the last five years. Morgan Stanley analysts estimate that the top 22 banks in the United States and Europe have been forced to pay $230 billion since 2009 – more than 50 times the cost of the FCA settlement. This is over and above the heavy losses that banks incurred from bad lending and overambitious financial engineering.