Frank: Don't punish JPMorgan for Bear Stearns's misdeeds

By Peter Schroeder - 10/22/12 05:15 PM ET

JPMorgan Chase should not face charges for the actions taken by Bear Stearns before it was acquired during the financial crisis, according to Rep. Barney Frank (D-Mass.).

The ranking member of the House Financial Services Committee staked a claim opposite New York Attorney General Eric Schneiderman, who also heads President Obama's task force on mortgage fraud, arguing Monday that JPMorgan should not be responsible for Bear's actions because it purchased the firm at the urging of federal officials. Frank, who headed that committee during the financial meltdown, called charges filed against JPMorgan "inappropriate."

At the beginning of October, Schneiderman filed charges against JPMorgan, alleging that Bear Stearns, which the bank acquired during the financial crisis, engaged in widespread fraud in the marketing and selling of mortgage-backed securities.

But Frank pointed out that JPMorgan bought the investment giant at the "strong request" of the Federal Reserve and then-Treasury Secretary Henry Paulson under former President George W. Bush, who believed Bear's collapse could wreak havoc on a teetering financial system. It now would be unfair to press charges on JPMorgan for activity that occurred before it bought Bear, Frank argued.

"The federal officials involved believed that the failure of Bear Stearns would have terribly negative consequences for the economy, and they urged J.P. Morgan Chase to do a good deed by taking over an institution which, I believe, the bank would never have sought to acquire absent that urging," Frank said. "The decision now to prosecute J.P. Morgan Chase because of activities undertaken by Bear Stearns before the takeover unfortunately fits the description of allowing no good deed to go unpunished."

Earlier this month, JPMorgan Chief Executive Jamie Dimon emphasized that his bank bought Bear at the urging of federal officials, calling the deal "a favor."

"Let's get this one exactly right. We were asked to do it. We did it at great risk to ourselves," he said at the Council on Foreign Relations. "Would I have done Bear Stearns again knowing what I know today? It's real close."

He also suggested that Bank of America should not be responsible for actions taken by Merrill Lynch, the investment firm it took over under similar circumstances.

Frank went on to say that he was not saying that there should be no accountability for actions contributing to the financial crisis, but rather that prosecutors should seek out individuals that committed the wrongdoing rather than the institutions where they worked, especially when those firms have now been absorbed by larger ones at the request of the government. In these "extraordinary cases," regulators and prosecutors should reconsider, Frank contended.

He also added that those banks that purchased firms on their own, without federal urging, should be held responsible for the actions of their acquisitions.

"I am aware of no federal urging that led CEO Ken Lewis of Bank of America to take over Countrywide, and it is entirely appropriate for the bank to be pursued on that account," he said.