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Health & Fitness

Fining all the way

With all of the focus this week on retail shopping, which is coming in weaker than expected due to deep discounts, as well as the OPEC meeting in Vienna this week, it might be easy to be distracted from other market stories. This is understandable — there is only so much time available in the day, and the holiday shopping season as well as oil prices are both market moving news events that are certainly worthy of the coverage they are receiving.

There is, however, another large story that is worth paying attention.

Banks have been fined $17 billion this year and according to a CNN Money story (link below). That is a significant increase over the $10 billion that the world’s largest financial institutions paid last year. This topic has been covered in the weekly podcasts, newsletters, as well as other blog posts, but it is worth examining once again due to the wide-ranging impact that these fines can have on the economy.

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•The fines are tax deductible, so the banks that are paying these fines actually receive a tax write-off for paying them

•Many of these settlements have deferred portions, that is, that even though the headline number may impact the firm’s earnings all at once, the actual payment may occur over a much longer period.

Find out what's happening in Ridgewood-Glen Rockwith free, real-time updates from Patch.

•Different divisions of the financial institutions may partake in activities that bring down the entire firm. Today’s announcement of Libor-rigging fines, and the London Whale incident of last year are perfect examples of this.

So if the firms that are paying these fines are not suffering as mightily as is initially thought, who is truly bearing the brunt? If financial institutions have to spend millions (or billions in aggregate) on compliance, legal, and other regulatory issues, that restructure the job market away from more value-additive functions toward compliance issues, it could be said that the large fines levied against financial institutions have a powerful impact on the job market.

Food for thought

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