A New York State banking regulator, that almost no one had heard of until now, singlehandedly knocked $17 billion off the market value of Standard Chartered Bank. Benjamin Lawsky of New York’s Department of Financial Services did this by threatening to take away Standard Chartered’s New York State banking license. This would be the punishment for what DFS says was a long-running scheme by Standard Chartered to get around US sanctions rules prohibiting dealings with Iranian entities.
As Yves Smith points out, Standard Chartered could also lose the right to perform dollar clearing transactions. This would make it nearly impossible for the bank, which concentrates on Asia, Africa and the Middle East, to facilitate US dollar transactions for its international clients. In other words, it would be a mortal blow. Hence the huge fall in the company’s stock.
This show is just getting started. As Smith says, huge questions loom over the role of the other, larger US regulators who knew about and were dealing with Stan Chart on these allegations…but apparently not with the same sense of drama as Lawsky and the DFS. How and why did Lawsky beat them to the punch? Were they asleep at the wheel? The New York Fed, the Treasury and others have got some explaining to do.
Although we’re far from a conclusion on this matter, we should keep this episode in mind the next time we’re tempted to say that regulators are powerless to stop misbehavior by the banks. For all of the banks’ firepower, deeper pockets and smarter staff, regulators do still hold the ultimate power over banks: that of life and death.