Following a slew of significant corporate settlements over the last several months — none involving criminal charges being brought against corporations or individuals — federal regulators and law enforcement have heard an increasing outcry over the lack of criminal prosecutions of financial institutions and their executive leadership. Congress, irked by the perceived “Too Big to Jail” policy, recently summoned Attorney General Eric Holder to a hearing, where he defended the Department of Justice (DOJ) as being “appropriately aggressive” in its investigations, yet also voicing his concern that a prosecution of a large financial institution could have a “negative impact on the national economy.” (Click here to view the full transcript of Attorney General Holder's remarks.).

The media has feasted on the notion of a financial industry above oversight or investigation — the phrase “Too Big to Jail” returns more than 4,000 hits in a Google News search. News outlets have run programs furthering this perception. Recently “Frontline,” the investigative reporting program on PBS, ran a piece titled “The Untouchables,” which examined why Wall Street executives have avoided prosecution during the fallout from the financial crisis.

However, some commentators have recognized that criminal prosecutions may not be the best — or appropriate — outcome. Following Attorney General Holder’s appearance on Capitol Hill, Professor Peter Henning ran a post with the title “After Financial Crisis, Prosecutors Navigate Tricky Waters” on his informative White Collar Watch blog in The New York Times. Professor Henning, himself once with the DOJ and Securities and Exchange Commission (SEC), acknowledged a critical factor DOJ must consider before charging a corporation — whether the severe and swift collateral consequences would cause disproportionate harm to the public and shareholders (in the words of the DOJ manual, “others not proven personally culpable” and outweigh the goals of a prosecution. Attorney General Holder and DOJ prosecutors are right to use the utmost caution in charging not only a financial institution but also any publicly traded institution, especially in cases where, as Attorney General Holder noted before Congress, DOJ identifies conduct that is “wrong” but does not rise to criminality.

Amid the public outcry over the lack of criminal prosecutions, one would hardly expect to hear general counsel at a financial institution describe the last several years as operating in an industry without regulation or investigation. In late 2009, President Obama announced the establishment of an interagency financial fraud enforcement task force, an effort DOJ trumpets as resulting in the filing of more than 10,000 financial fraud cases. Other regulators, such as the Office of the Comptroller of the Currency and the Federal Reserve Board, and the SEC, have also been active in their oversight, announcing large settlements with financial institutions. And in light of the ongoing congressional hearings and investigations, general counsel at financial institutions are right to expect continued and growing oversight and regulation.

While the media point out that financial institutions may be “too big to jail,” they certainly have not been “too big to investigate” or “too big to regulate.” But those aren’t catchy headlines. Nor are they true.