Democratic Congressman Barney Frank defended the nation’s largest bank on Monday, saying in a statement that the government was wrong to go after JPMorgan Chase & Co. for the alleged misdeeds of Bear Stearns.
Frank, the co-author of the 2010 Dodd-Frank financial reform law, said federal and state officials should reconsider holding financial firms liable for the wrongdoing of institutions they absorbed at the government’s urging.
The unusual statement comes after New York Attorney General Eric Schneiderman sued JPMorgan, the nation’s largest bank by assets, on Oct. 1 over mortgage-backed securities packaged and sold by Bear Stearns.
A JPMorgan spokeswoman declined to comment.
Since that suit was filed JPMorgan Chief Executive Jamie Dimon lashed out at the decision.
At a Washington event on Oct. 10, Dimon said his bank and its shareholders were still paying the price for doing the Federal Reserve “a favor” by buying Bear Stearns in early 2008, when its instability was threatening the larger financial system.
Dimon said the suit could make financial firms think twice in the future about rescuing their failing rivals.
Frank, who served as chairman of the House Financial Services Committee during the Bear acquisition, said in his statement: “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.”
Frank backed up Dimon’s assertion that it was the government that pushed Bear Stearns on JPMorgan.
Federal officials “believed that the failure of Bear Stearns would have terribly negative consequences for the economy,” Frank said.
The officials urged JPMorgan “to do a good deed by taking over an institution which, I believe, the bank would never have sought to acquire absent that urging,” he said.
A spokesman for the New York Attorney General’s office did not immediately respond to a request for comment.
Frank also drew a line between what he said were fair legal actions and unfair ones, while noting he was not advocating for immunity for banks.
For example, he said Bank of America should probably be shielded from government legal action related to Merrill Lynch, which Bank of America took over in part because of federal officials’ urging.
However, Frank said he was aware of no federal urging that led former Bank of America CEO Ken Lewis to take over Countrywide.