Since the global financial crisis began, the Anglo-American banking sector has been hit by revelation after revelation of mis-selling, fraud, and collusion. In response, regulators in the US and the UK have levelled over £300bn in financial penalties. The premise, supported by certain strands of the legal studies and behavioural economics literatures, is that since financial penalties hit 'the bottom line' for firms, they are an effective mechanism for producing more ethical behaviour. Whether or not this is true in general, this paper challenges this assumption in regards to the largest Anglo-American banks. Having briefly outlined the fines, and the academic literature, this paper shows three ways in which the fines are diluted: firstly, the fines are meant to impact share prices and profitability, promoting change, but this is highly questionable; secondly, that by various measures the fines quickly became assimilated into the business models of the banks; and thirdly, that the structure of the fines themselves dramatically reduced their severity. This raises the question of why these penalties have been such a prominent feature of the regulatory response. The answer this paper offers is that the fines are part of a wider attempt by state managers to respond to a legitimacy crisis in both the UK and the US.
