Too Big to Indict?

As the Justice Department considers criminal charges against big banks, the industry predicts fallout similar to the fate of Arthur Andersen.

As U.S. Justice Department prosecutors angle to bring the first criminal charges against global banks since the financial crisis, they’ll have to stare down warnings of uncontainable collateral damage.

The 2002 collapse of Arthur Andersen, the accounting firm indicted in the Enron scandal, “should be a lesson” for prosecutors, Brad Hintz, an analyst at Sanford C. Bernstein & Co., said today in an interview on Bloomberg Television. “Don’t play with matches.”

Client psychology also could come into play. For example, even if investment managers aren’t prohibited from working with a bank, they may shy away because they don’t want to explain why they put funds in a firm with a criminal past.

Mindful that the specter of criminal charges helped put financial institutions such as Bank of Credit and Commerce International and Drexel Burnham Lambert Inc. out of business, prosecutors in Washington and New York have met with representatives of the Federal Reserve and the Office of the Comptroller of the Currency to discuss the regulatory risks of indictments, according to two people briefed on the matter.

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