RBS Could Face Criminal Charges Over Libor: Report

So maybe too-big-to-fail banks aren't too big to jail after all.

At least, it is starting to look as if tiny, digestible chunks of big banks are potentially subject to criminal charges, if the bank's evil deeds are obvious and egregious enough. The Wall Street Journal reports today that U.S. government officials are within days of announcing a $790 million fine and possible criminal charges for Royal Bank of Scotland over manipulation of the key short-term interest rate known as Libor. A deal could come in the next couple of weeks, the WSJ writes, but RBS officials are balking at the idea of pleading guilty to criminal charges.

It is hard to blame RBS officials for balking -- only recently have U.S. prosecutors gotten brave enough to actually file criminal charges of any sort against banks. They started with the Swiss bank UBS, whose Japanese unit pleaded guilty last month to criminal charges to help settle that bank's massive Libor headache. Before that, ginormous banks such as Barclays (Libor) and HSBC (money-laundering) managed to dodge any criminal charges at all because officials were terrified of rattling the global financial system. When the world didn't end after UBS criminal charges, officials got a little bolder, the WSJ writes, meaning RBS might have to ritually sacrifice one of its own Asian subsidiaries.

So that's good news: Actual criminal charges are likely to have more of a deterrent effect than the usual wrist-stinging fines and avoidance of admitting wrongdoing. Also helpful would be actual charges against individuals, of which there have been noticeably few in the Libor scandal. The BBC reported recently that dumb trader emails about Libor in the RBS case are "particularly lurid," which is really saying something, considering the history of dumb trader emails in this wide-ranging scandal. That suggests there could be grounds for some people to be sent to jail.

And who knows? Maybe if prosecutors discover that they can send some people to jail over Libor without the world ending, then they might be emboldened to revisit the possibility of sending people to jail for the even more damaging mortgage-market shenanigans leading up to the financial crisis. Ah, but that's probably too much to ask.