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Banks pay for past sins as US, Europe levy record fines

LONDON -- U.S. and European regulators fined banks record amounts this year, imposing penalties and settlements of more than US$43 billion as authorities work more closely across borders to clean up the financial sector.

Banks in the United States and Europe are paying for misconduct that includes mis-selling U.S. mortgage bonds, rigging interest rates, and risky transactions such as JPMorgan's “London Whale” trades.

Regulators across the globe are making banks dig far deeper than in the past for their misdeeds, led by U.S. authorities who have long been more aggressive and imposed penalties more than 10 times those meted out in Europe.

Fines and settlements paid to U.S. federal and state authorities have cost banks more than US$40 billion this year, according to Reuters estimates, led by JPMorgan's record US$13 billion payout last month to a number of regulators for mis-selling mortgage bonds.

European authorities handed out record fines of more than US$3 billion. The bulk was due to the European Union's anti-trust regulator's record 1.7-billion-euro (US$2.3 billion) fine this month against six financial firms for manipulating Libor and Euribor benchmark interest rates.

Two trends are clear: regulators are slapping bigger fines on banks in an effort to clean up standards; and regulators appear to be working better with each other as they all strive to get a piece of any payouts.

“The level of cooperation and coordination between international regulators is an increasing threat to regulated firms,” said Richard Burger, partner at British law firm RPC.

“There is enormous political pressure on every single regulator to be seen to be taking their pound of flesh when there is a regulatory failing that crosses borders,” he said.

Many firms are also more willing to settle early to avoid political or public backlash and there is more reporting of misconduct and whistleblowing, industry sources said.

That is likely to leave banks facing the prospect of more big fines and settlements next year.

Banks still face scrutiny over a long list of issues in the United States, and when the European Commission imposed its interest rate settlement it vowed to keep probing rate-rigging.

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