The tentative $13 billion penalty the largest U.S. bank has agreed to pay the government in connection with its loose financial deals in the years before the country's steep recession is only one of several ongoing investigations.
JPMorgan Chase negotiated the penalty with the country's Justice Department late last week. It would be the biggest ever against a U.S. company.
But the government refused the bank's bid to end a companion criminal investigation centering on the quality of securities it sold to investors that included thousands of home loans on which borrowers were defaulting. That made the securities all but worthless.
Bank analyst Bert Ely told VOA that in the years before the U.S. economic downturn in 2008 banks often engaged in weak reviews of borrowers' financial credentials before granting them loans.
"There were lots of losses. And anytime there are losses, then those investors who suffered losses start looking for villains. And unfortunately there were a lot of villains in the housing finance business, and in all aspects of it, JPMorgan was just one of many," said Ely.
Ely added that "one of the ironies" is that part of JPMorgan's problem is that it bought - at the government's behest - two failing financial institutions, investment bank Bear Stearns and Washington Mutual Bank. But JPMorgan is now responsible for the lending practices at the two banks, as well as its own actions.
The government is also looking at the lending practices and security sales at other major U.S. banks, including Bank of America, Goldman Sachs and Morgan Stanley.
Lending was encouraged
Ely said that while U.S. financial institutions are not blameless for their role in the country's deepest recession since the Great Depression in the 1930s, their actions also are partly caused by the fact that U.S. laws encourage lending to promote economic activity.
"I would argue that a lot of these activities and the extent of them really are a product of U.S. banking regulation and the tax laws that encourage ... borrowing by businesses as well as individuals,” said Ely.
There is no date set for finalizing the JPMorgan settlement with the government. The tentative deal calls for $9 billion in fines or penalties, with $4 billion going to home loan borrowers. Millions of borrowers lost their houses when they could no longer make loan payments after being laid off from their jobs.
The bank has set aside at least $23 billion in reserves to cover settlements and legal expenses related to its actions before and after the financial crisis.
Ely said it could be another couple years before all the U.S. investigations of the activities of financial institutions in the lead-up to the recession are finished.