The farce of antitrust penalties in the financial sector

It has been on the news this week that the Hungarian competition authority (GVH) imposed a record fine on 11 banks that coordinated their actions to dissuade mortgage borrowers from participating in a scheme aimed at lowering the financial burden on home-owners with foreign-currency loans. Details of the case aside, this case made me realise just how farcical it is to impose these hefty fines in an industry, where governments find it acceptable that only gains are privatised and losses are socialised.

There are two key justifications of legal penalties: retribution and deterrence (rehabilitation and incapacitation are also often mentioned but more relevant to crimes committed by natural persons). This should not be any different for antitrust sanctions either. The financial sector however seems to be an exception. This is a sector, where, for some reason, Governments most readily bail out any market player in the first sign of self-inflicted insolvency. This seriously calls into question the honesty of antitrust sanctions (bar imprisonment) in this sector. As financial sector losses are distributed over the whole of the society, it is at least debatable that antitrust fines will have either a retribution or deterrent effect, and it is unlikely that policymakers are unaware of this travesty. The social loss-bearing nature of the industry seems to suggest that instead of pecuniary sanctions, imprisonment may be the only effective penalty in these cases.

As an illustration, I picked some of the members of the LIBOR cartel that have already agreed to pay some sort of antitrust fine/settlement for their involvement in the cartel. Purely for illustrational purposes I juxtaposed this with the bailout amount the same banks received in the course of 2008-09 (the banks listed are not randomly picked. Many of the cartel members decided to object the allegations or have not paid a fine/settlement yet).

Banks in LIBOR case

Antitrust fine or
settlement paid (billions)

Bailout (billions)

Barclays Bank plc 



JP Morgan Chase 






The Royal Bank of
Scotland Group 






*             Deutsche Bank has admittedly already set aside EUR500M to cover fines related to the alleged manipulation of Libor.

Anti-cartel enforcement is often hailed as the champion of antitrust, which leads to vast consumer benefits, resulting from both the cessation of the cartel and the deterrent effect. But do these alleged benefits net for the losses that are caused by the very existence of antitrust fines in industries, where with the assistance of governments firms eventually recoup these fines from the public?


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