George Osborne shouldn't have intervened in US for HSBC

A good old banking scandal would almost be comforting in these uncertain times. Unfortunately, the latest report from the US about HSBC’s time as the bank of choice for Mexican drug lords is anything but comforting, because it isn’t really a banking scandal any more. It is as much a political and a regulatory scandal.

The US Congressional report, Too Big to Jail, complains that “the involvement of the United Kingdom’s Financial Services Authority in the US government’s investigations and enforcement actions relating to HSBC ... appears to have hampered the US government’s investigations and influenced DOJ’s decision not to prosecute HSBC”.

As we know, the bank was ultimately fined a then record $1.9bn (£1.44bn) back in 2012, had to accept oversight from a US monitor, and said it was very sorry, to settle a long list of charges relating to money laundering and sanctions busting on behalf of some very nasty regimes.

It was lucky. Had it not copped a plea and been prosecuted its US banking authorisation would have been put at risk. A criminal conviction in the US would have put that licence up for review, threatening HSBC's ability to clear US dollar transactions.

That would be bad news for an enormous, and systemically important, bank like HSBC. It reports in dollars. The currencies of many of the territories in which it operates are tied to the dollar. The currency is central to its business.

The decision to revoke its ability to clear in dollars would have caused quite the problem, and not just for HSBC but for its home regulators too. No wonder it lit a fire under the Financial Services Authority, whose staff were constantly on the phone to their American colleagues in an attempt to light fires over there too.

They also “escalated” the issue to Chancellor George Osborne, who penned a letter to Ben Bernanke, then chairman of the US Federal Reserve, and Tim Geithner, who was serving as the US Treasury Secretary.

The report says that in the letter he “insinuated” that the US was unfairly targeting UK banks by seeking settlements significantly higher than “comparable” settlements with US banks. Having read the letter, it is pretty obvious that that is indeed what he was saying.

Was there really a comparable case involving of a US bank with such wanton failings as regards money laundering and sanctions busting? Debatable.

But if the US authorities were inclined to go easier to their “home” banking team, as Mr Osborne appeared to suggest, how does that explain the staggering $13bn settlement agreed by US bank JP Morgan, an institution of comparable size to HSBC, to settle allegations of mortgage fraud.

JP, you may remember, complained at the time that much of the wrongdoing could be laid at the doors of Bear Stearns and Washington Mutual, two banks it rescued, thus sparing the US authorities quite a lot of bother.

Don’t feel too much sympathy for JP – if you taken on another company you take the good with the bad. The point is American regulators didn’t show a lot of sympathy when they soaked the bank.

In retrospect, Mr Osborne’s letter doesn’t display the best of judgment, not least because despite going into bat for HSBC it subsequently made a big song and dance about quitting the UK and is now in the process of shipping jobs over to Paris post-Brexit. Banks are fickle friends at the best of times.

The report’s conclusions do have to be taken with a pinch of salt. It was prepared by Republican staff of the US House of Representatives Committee on Financial Services and its partisan intent is obvious.

The sub-header “Inside the Obama Justice Department’s Decision Not to Hold Wall Street Accountable” tells you all you need to know. The report’s aim is not so much to inform as it is to portray the Democrats and the Obama administration as being in the pockets of Wall Street.

However, they don’t have so much of an axe to grind against the Brits. The FSA and Mr Osborne are simply included to add fuel to its partisan fire.

And the central point about the Brits remains valid: they got frightened and intervened in an apparently successful attempt to get HSBC a lighter sentence when it had behaved very, very badly.

Mr Osborne and the FSA were correct that HSBC being locked out of the US, and barred from clearing dollars, would have created a huge problem.

But if HSBC didn’t want to do the time it shouldn’t have committed the crime. If it is wrong for an institution to be too big to fail it is equally wrong that it is too big too jail. It is time policymakers and regulators in the UK recognised that.