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European Banks Reach Multi-Billion Dollar Settlement Over Toxic Mortgages


Two major European banks say they've agreed to pay large penalties, a combined $12-and-a-half billion, to the U.S. government. They are settling claims that they knowingly sold toxic mortgage debt, the securities that fueled the financial crisis eight years ago. NPR's John Ydstie reports.

JOHN YDSTIE, BYLINE: Under separate agreements, Credit Suisse will pay a total of $5.3 billion, and Deutsche Bank will pay $7.2 billion. About half the money will go to modifying home loans for struggling consumers. The U.S. Justice Department has declined to comment on the deals.

In the case of Deutsche Bank, the settlement is about half of what the Justice Department initially wanted, says Hal Scott, a professor at Harvard and director of the nonpartisan Committee on Capital Market Regulation.

HAL SCOTT: One of the things that is puzzling about these settlements as well as the prior ones is exactly how these numbers get calculated.

YDSTIE: Scott says the process isn't transparent and should involve specifying how much people lost as a result of the bank's activities. Deutsche Bank shares rose on the news that the actual penalty was lower. There were worries the bank would have struggled to pay the larger amount.

Some observers have suggested that the Deutsche Bank deal may have been rushed because the Obama administration wanted to complete it before handing the White House over to Donald Trump. He reportedly has loans from the bank of around $300 million. Scott is skeptical.

SCOTT: You know, the Justice Department, the people who are conducting this, are professionals. And I highly doubt that that would have had any impact on this.

YDSTIE: U.S. authorities have extracted more than $46 billion from U.S. banks in similar cases. Yesterday, the DOJ sued the British bank Barclays after it turned down a settlement. Justice Department probes involving three other big European banks continue. John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.

John Ydstie has covered the economy, Wall Street, and the Federal Reserve at NPR for nearly three decades. Over the years, NPR has also employed Ydstie's reporting skills to cover major stories like the aftermath of Sept. 11, Hurricane Katrina, the Jack Abramoff lobbying scandal, and the implementation of the Affordable Care Act. He was a lead reporter in NPR's coverage of the global financial crisis and the Great Recession, as well as the network's coverage of President Trump's economic policies. Ydstie has also been a guest host on the NPR news programs Morning Edition, All Things Considered, and Weekend Edition. Ydstie stepped back from full-time reporting in late 2018, but plans to continue to contribute to NPR through part-time assignments and work on special projects.