Alternative Headlines, or, Putting Financial Penalties in Context

“Royal Bank of Scotland Group PLC on Wednesday agreed to pay $5.5 billion to the U.S. Federal Housing Finance Agency to settle a probe into its sale of toxic mortgage-backed securities in the run up to the financial crisis.”

The Wall Street Journal (July 12, 2017).

Shelling out $5.5 billion sure sounds like a lot, right?

Not for a global mega-bank like Royal Bank of Scotland (“RBS”).

In fact, against RBS’s $1 trillion balance sheet, that $5.5 billion comes to a rather measly .55% of the bank’s assets.

In other words, a veritable wrist slap.

A Modest Proposal

To help out non-Wall Street types, I propose that financial journalists report future settlements as a percentage of the miscreant’s size — or, if you prefer, its annual profits or revenues.

The result?

This headline:  “RBS Agrees to Pay Fine Equal to < 1% of Assets Over Sale of Mortgage Securities During Crisis.”

P.S.:  Also problematic:  1) the punishment is civil, not criminal; and 2) the fine is paid by the corporate entity, not the responsible individuals.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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