Billion dollar banking fines hurt, and that's good, but they won't solve the problem of bankers' bad behaviour

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What are the implications for Royal Bank of Scotland, and perhaps Barclays, now that Deutsche Bank has finalised its $7.2bn (£5.8bn) penalty to settle US charges of mis-selling mortgage backed securities that played such an important role in the financial crisis of 2007/2008.

It could be considered good news, given that as recently as last autumn the figure of $14bn was mooted as Deutsche’s likely penalty while people were talking about $12bn for RBS.

But that assumes there is a logical read across, and there probably isn’t.

Counting against RBS is the fact that it had greater involvement in the trade than did Deutsche. But even that doesn't necessarily count for anything. There isn’t a schedule for how these penalties are calculated.

It sometimes feels as if the US Department of Justice (DoJ) sticks its finger in the air and comes up with the number, after which there’s a bit of a scrap before the two sides agree on a bit less.

Critics of the process have been calling for someone to call the DoJ’s bluff. Step forward Barclays, which has said it will go before the courts to seek a lesser settlement than the one that it is rumoured to have been facing.

However, Barclays has previously walked half way up to the top of the hill while snarling at US watchdogs in the past, only to walk back down again to agree a deal over allegations about the operation of its dark pool share trading exchange.

The stakes were rather lower, but I would still be amazed if a deal wasn’t done to settle Barclays issues with mortgages too.

Those who claim that the American authorities have been indulging in a shake down, and that their tactics need to be tested, are liable to end up disappointed.

For the record, I don’t think that criticism holds water anyway. No one seriously argues that these banks didn't do bad things. Fines for doing bad things only work if they hurt.

You can criticised how they are arrived at but the DoJ’s fines certainly do that.

They are of sufficient size that even banking executives, who think first and foremost about their own bonuses, then take a breath, and think about their bonuses some more, will take account of them.

So will banks' usually supine institutional shareholders, which explains the decision by Deutsche to share the pain around by cutting bonuses.

No, there are two big problems with these fines, and they are not their arbitrary nature, or their size, or even the fact that European banks have been asked to pay more.

The first is the time taken to get them on the books. By now, most of the senior bankers responsible for the actions that led to the fines have left the industry.

Some have retired to sunny climes. Some are spending their time consulting. Some have part time jobs sitting on other companies’ boards. Some are even in the process of making second fortunes in private equity or hedge funds.

Justice delayed is justice denied and a new generation is paying when it should have been down to the old one to sort out the mess.

The other problem is that no individuals will be penalised alongside their former employers.

The great flaw of the regulatory actions that have followed the crisis is that so few individuals were held to account for their actions.

Penalties against individuals are ultimately far more effective than penalties against institutions, which primarily fall upon shareholders rather than bankers, for ensuring that the sort of behaviour the Department of Justice is punishing isn’t repeated.