The bulk of the DFS's budget for its bank regulatory activities comes from examination fees charged to state-chartered banks and other financial entities, and to state-licensed New York branches of foreign banks, including Standard Chartered of London.
According to a 2006 study by the Federal Deposit Insurance Corp., the New York State Banking Department lost "approximately 30%" of its assessment revenue in 2004, when JPMorgan Chase Bank -- the main banking subsidiary of JPMorgan Chase (JPM - Get Report) -- switched to a national charter to become JPMorgan Chase Bank NA, and HSBC (HBC) unit HSBC Bank USA also switched to a national charter.
The state could well be overstepping its bounds in handing down its own order, without first seeking a settlement that also includes the FDIC, the Federal Reserve and the legal authorities.
Annemarie McAvoy, adjunct professor of law at Fordham University School of Law and a former federal prosecutor, says "the point of these charges is to set the bank on its heels, making it very difficult to fight back," and with Standard Chartered's share price falling 16% on Tuesday, "customers are asking if you are trustworthy and if you will be able to survive, and they begin to flee."The bad publicity and market disruption "puts you in a much better position to impose a big fine," according to McAvoy. "States have very few ways to raise money right now, other than hefty fines," she said, adding that "this could be a billion-dollar fine ... It's a real money maker." While a $1 billion fine seems astronomical, the DFS says that Standard Chartered funneled "at least $250 billion" in illegal transactions through the New York Office, "reaping SCB hundreds of millions of dollars in fees," and huge fines have been paid to the state before. Way back in 1996, Daiwa Bank pleaded guilty to criminal charges of covering up $1.1 billion in trading losses, agreeing to pay the state a $340 million fine.
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