Democratic Congressman Barney Frank defended the largest U.S. 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, who served as chairman of the House Financial Services Committee during the Bear Stearns acquisition, said federal and state officials should reconsider holding financial firms liable for the wrongdoing of institutions they absorbed at the government's urging.
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"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," said Frank, who was also the co-author of the 2010 Dodd-Frank financial reform law.
New York Attorney General Eric Schneiderman sued JPMorgan, the nation's largest bank by assets, on October 1 over mortgage-backed securities packaged and sold by Bear Stearns.
But Schneiderman gained support from former New York Attorney General Eliot Spitzer who said in a statement that the complaint catalogs evidence of "platform-wide wrongdoing".
"It is a necessary action to bring accountability for the mortgage meltdown and the financial collapse. Widespread misconduct should not disappear simply because one bank has been acquired by another."
Earlier this month, JPMorgan Chief Executive Jamie Dimon lashed out at the lawsuit, saying it could make financial firms think twice about rescuing their failing rivals.
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, he said.
In defending JPMorgan, Frank, who is retiring at the end of this term, backed up Dimon's assertion that the government pushed Bear Stearns onto JPMorgan.
Federal 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.
Frank also drew a line between what he said were fair legal actions and unfair ones, 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.
(Reporting By Aruna Viswanatha. Editing by Andre Grenon and Edwina Gibbs)