One view: Maybe jail would help big banks behave better

The following editorial originally appeared in USA Today.

The financial crisis of 2008 was supposed to bring a reckoning for Wall Street. Its top practitioners would reflect on how foolish they had been. They would learn from their mistakes and resolve to change their ways.

So far, the reckoning hasn't gone so well. The main lessons that many on Wall Street seem to have absorbed have less to do with ethical behavior than with self-preservation: Don't bet the firm, and don't get caught. And they haven't even done a very good job with the latter.

A week ago, four major banks — Citicorp, JPMorgan Chase, Barclays and the Royal Bank of Scotland — pleaded guilty to manipulating currency exchange rates and were fined $2.5 billion.

A fifth bank, UBS, pleaded guilty to manipulating a key inter-bank interest rate and was fined $203 million. This came after the Justice Department determined that UBS' recent currency transactions had breached a 2012 non-prosecution agreement on the interest rate scam. In other words, even after getting caught and being placed on a kind of probation, traders continued to cheat.

The behavior of the banks was deeply disturbing but hardly novel. Last year, BNP Paribas paid nearly $9 billion and pleaded guilty to criminal charges for processing financial transactions for rogue nations such as Iran and Sudan. Before that, Credit Suisse paid $2.6 billion and pleaded guilty to conspiring to help wealthy Americans evade U.S. taxes by filling out false returns.

On a smaller scale, but also troubling, Deutsche Bank agreed Tuesday to pay $55 million on charges that it misstated financial reports.

The fact is, Wall Street has changed little since the financial bust. Thanks to new regulations, its major institutions have more robust balance sheets and more capital set aside to protect against losses. Even so, some traders, investment bankers and other executives continue to believe that they have an obligation to skirt the law. As one Barclays employee involved in currency manipulation put it in an internal chat room: "If you ain't cheating, you ain't trying."

In fact, nearly 20% of financiers surveyed by law firm Labaton Sucharow said they had to engage in unlawful or unethical behavior to get ahead. And 25% said they would commit insider trading to make $10 million if they saw no likelihood of being caught.

The hubris and disregard for the law are astounding. These people rig markets and lie to clients out of a sense of superiority and because they operate in a world where results are demanded (and rewarded) with few questions asked.

Increased regulation and criminal charges against companies haven't had much affect. The needed cultural shift is likely to occur only when more individuals go to jail, when leadership demands ethical behavior and when Wall Street abandons its excessive reliance on bonuses tied to short-term results.

Until that happens, expect more market manipulation and more headlines about bankers behaving badly.

USA Today's editorial opinions are decided by its editorial board, separate from the news staff.