HSBC sickness

HSBC US fallout will have EU peers biting nails

HSBC's "Too Big to Jail" saga may have been in 2012, but the fallout is still going on. A Republican-led committee's review of the UK bank's punishment - when it received a $1.9 billion fine for money-laundering and sanctions-busting - focuses on why it escaped criminal sanctions. The answer will have European rivals on tenterhooks.

The political make-up of the committee means the report ("Too big to jail: Inside the Obama justice department's decision not to hold Wall Street accountable") is far from scrupulously neutral. Its election-year release is unlikely to be a coincidence. It skewers former Attorney General Eric Holder over his public backtracking on HSBC, arguing the Justice Department's decision not to indict was down to financial stability fears rather than a lack of evidence.

While proximity to the financial crisis helps explain Holder's actions, the US patchwork-quilt approach to oversight takes a beating. The Justice Department sent details of its fine to HSBC before consulting with the U.S. Treasury, as it competed with the New York Department of Financial Services to settle first, the report says. A charge that HSBC was able to water-down restrictions on executive bonuses could push authorities to play hardball in future. One of HSBC's then-toughest critics at the Justice Department now even works for the bank. All parties named in the report have declined to comment.

The biggest issue, though, is that the UK regulator and Chancellor George Osborne may have sapped foreign negotiating leverage. Their interventions seem to have secured HSBC greater leniency. It will be harder for other countries to protect domestic champions now Credit Suisse and BNP Paribas have received bigger fines and offered guilty pleas through local subsidiaries without systemic consequences.

Lenders that could be biting their nails include Royal Bank of Scotland and Deutsche Bank. RBS is yet to settle over alleged misselling of US residential mortgage-backed securities, and fines could be well in excess of $10 billion. Deutsche, meanwhile, is in discussions with authorities over trades that may have helped Russian clients evade sanctions. The report will add to pressure for their punishment to be harsh.