US metes $4.9bn penalty on RBS, for RMBS “fraud”

“It’s like quasi organised crime” lamented Royal Bank of Scotland’s US chief credit officer about the residential mortgage-backed securities scheme that the firm engaged in between 2005 and 2007. A decade later, the troubled bank tries to draw a line under its unbridled plunge into greed and unethical practices with a $4.9 billion payment to American authorities, reports Esther Martin.

Royal Bank of Scotland has agreed with theUnited States Department of Justice to pay $4.9 billion for duping investors in the underwriting and issuing of residential mortgage-backed securities between 2005 and 2008. There have been bigger fines – for instance, Bank of America’s $16.7bn and JP Morgan’s $13bn settlements, both similarly for misleading investors when selling toxic mortgage-backed securities. But the RBS penalty is the biggest inflicted by the DoJ for financial crisis-era misconduct by a single entity under the Financial Institutions Reform, Recovery and Enforcement Act of 1989. This Act, which responded to the savings and loan crisis of the 1980s, allows the federal government to obtain civil penalties from financial institutions for violations of 14 criminal offences, including wire and mail fraud. This legislation was dusted off by the DoJ to deal with financial crisis wrongdoing because it offers powerful advantages: proof by a preponderance of the evidence rather than beyond reasonable doubt, a ten-year statute of limitations, administrative subpoenas, as well as “expansive interpretations of the statute”. [1]