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Guilty banks can avoid death penalty

Few things would be as surprising as the sight of JPMorgan (JPM) Chase & Co. pleading guilty in a criminal case. Yet this could be a real possibility, if we are to believe recent news reports about the bank’s settlement negotiations with the Justice Department.

This week, for instance, the Wall Street Journal said JPMorgan may have to pay as much as $11 billion and plead guilty to a criminal charge to settle a Justice Department investigation of the bank’s sales of mortgage bonds several years ago. The markets’ reaction? Yawn.

Perhaps a criminal case against a major U.S. financial institution wouldn’t be such a big deal after all, especially if resolved swiftly. It may come down to outside perceptions of the government’s intent. If prosecutors show they are determined to put a firm out of business -- say, by getting an indictment and pushing to strip its licenses -- investors, customers and counterparties would understandably react harshly.

Not every case has to be this way. Even a settlement that includes a guilty plea could be designed to have few collateral consequences, as long as the bank’s regulators go along.

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