When FedFin first assessed the policy impact of Archegos’s end in April, one prediction got some client push-back. We said then that calls among banks conferring on ways to reduce losses linked to Archegos exposures could spark allegations of collusion and a subsequent antitrust inquiry. According to Bloomberg, so it has proved to be. I think the difference of opinion comes down to the fact that compliance and risk-management assessments are guided by lawyers and lawyers look at what’s in the book. If, though, you look at what might come to be in the book, you often discover a new risk that warrants far less tolerance.
We based our forecast of Archegos antitrust fallout in part on another case in which the rulebook didn’t bar an activity but banks that engaged in it nonetheless suffered mightily at the hands of aggrieved regulators and litigious investors: LIBOR-benchmark rigging. One need not revisit that sorry tale to recognize that it’s a precursor to a far different view a decade later about instances in which banks allegedly use nonpublic information to set a strategy that profits themselves ahead of the broader marketplace.
For LIBOR transgressions, the regulatory remedy often came from a then-new, often-stretched assertion of what the rules at the time required in terms of market transparency. Now, the focus is on antitrust not only because of residual anger about LIBOR and other incidents, but also because antitrust enforcement is all the rage and big banks are a very big target.
Of course, one news story does not ensure an antitrust inquiry nor are alleged facts always actual facts – quite the contrary an awful lot of the time. But, even if nothing comes of this “collusion,” the incident is a timely reminder that what seems fine across the trading floor and what may even be fine with compliance overlords isn’t always fine. Indeed, it’s often the things that seem fine because everyone has always done them that actually prove particularly problematic.
It seemed improbable in 2008 that the public could ever get any angrier at banks. And the public in general isn’t actually any angrier about banks. What it’s a lot angrier about this time is economic inequality and the role big companies seem to play in an economy that works only for those who run the big companies. Tech-platform companies are of course the perpetrators in both progressive and populist sights at the moment. But a general mood of acute distrust endangers anyone considered a colluder. That was predictable and should have been thought through before someone started scheduling conference calls.