By Preston L. Kennedy, President/CEO, Bank of Zachary

(From an address to the 116th Annual Convention of the Louisiana Bankers Association, May 12, 2016)

Despite the constitutional guarantee of equal protection under the law, an unfair and un-American two-tiered system of justice exists in the United States, with one set of laws and punishments for community bankers and a different set of laws and punishments for those institutions that are deemed “systemically important”, more accurately Too Big to Fail, Too Big to Jail, and Too Big to Punish.

We have known for a long time that there are financial institutions that are so large, and so interconnected that a failure of one of them, let alone several of them, would cause economic calamity.  Too Big to Fail has not gone away and will not go away and we should not fall for lies that claim otherwise. 

And while it is impractical to think that Too Big to Fail will disappear, it is entirely possible that the executives and boards of directors of these large entities be subject to the same standard of justice as the executives and board members in this room. 

In 2013, HSBC admitted to aiding and abetting money laundering for many of the worst criminals and terrorist states the world over. 

Our Department of Justice extracted a large fine but failed to pursue criminal charges because to do so, in their opinion, might “destabilize the entire banking system”.  So those personally responsible were allowed to walk away from their crimes.

Last year, five of the largest banks in the world admitted to criminal wrongdoing in what was described as a currency manipulation cartel.  It was the banks that admitted to being criminal – not the individuals. 

The shareholders of these banks coughed up huge fines but no one at those banks faced the prospect of jail time.  The criminal activity was blamed on rogue employees no longer employed by the banks.  That may work for a Too Big to Fail executive, but no community banker could get away with that dodge – we are held responsible for everything that happens under our roof on Main Street.

Now, I’m sure JP Morgan Chase CEO Jamie Dimon was very contrite when he said:  "The conduct of a small group of employees, or of even a single employee, can reflect badly on all of us, and have significant ramifications for the entire firm”.

“Significant ramifications” means one thing for Jamie Dimon, but something entirely different for community bankers. 

For Jamie Dimon it is a vapid statement of remorse to the financial press.  “Significant ramifications” to the officers and directors of community banks include financial ruin; a lifetime of achievement destroyed; loss of a valued hometown institution; and the wearing an orange jumpsuit for several years.

A few weeks ago, the Wall Street Journal printed an an op-ed from Mr. Dimon offering unsolicited advice to community bankers to “stop inventing conflicts where none exist”.  

In my response, printed a few days letter, I pointed out that from Mr. Dimon’s lofty Wall Street vantage point, having attained the blessed assurance of immortality of Too Big to Fail/Too Big to Jail status, it must be difficult to recognize the strife inherent in a system that guarantees an unlevel playing field.

Mr. Dimon concluded his condescending exposition with breathtaking understatement, admitting that “The crisis of the past decade has taught us that mistakes by the largest banks can affect the broader financial system.”  Yes! - and water is wet and the Grand Canyon is just a hole in Arizona! 

Jamie Dimon’s “mistakes” are covered by his shareholders as a cost of doing business.  But our mistakes result in criminal referrals and open the prisons to community bankers.

A few weeks later, I received a letter from Heys McMath III, former President and CEO of First National Bank of Savannah (Georgia).  His return address is Mobile B Federal Prison Camp, Maxwell Air Force Base, Alabama.

Mr. McMath admitted to filing false reports in a loan scheme, which resulted in criminal indictments against seven officials and the ultimate failure of the First National Bank.

I am not defending Mr. McMath – our industry is better off when illegal behavior is uncovered and punished.  He did the crime, and now he is doing the time.  In fact, the example of Mr. McMath in prison is a strong deterrent to any community banker who may consider risky behavior.

But why is it that Mobile B Federal Prison Camp is open only for the likes of Heys McMath III?  Why is it that only community banker scalps get nailed to the wall?  

No one from the Justice Department euphemistically called Mr. McMath’s behavior a “mistake” – they called it a crime and they prosecuted it as a crime.

J P Morgan Chase alone has made enough “mistakes” to pay $23 billion in fines, and has admitted to criminal activity, but Jamie Dimon still collects his $20 million dollar salary.  

But Heys McMath III wrote to me from federal prison.

It was in an historic jailhouse letter that Martin Luther King wrote “Injustice anywhere is a threat to justice everywhere.”  A system that so blatantly favors the huge and powerful is certainly unjust.

Preston L. Kennedy (@BankPres) is President and Chief Executive Officer of Bank of Zachary, a $225 million community bank in southeast Louisiana.

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