“The Justice Department, along with federal and state partners, today - the largest settlement with a single entity in American history - to resolve federal and state civil claims arising out of the packaging, marketing, sale and issuance of residential mortgage-backed securities (RMBS) by JPMorgan, Bear Stearns and Washington Mutual prior to Jan. 1, 2009,” the DOJ said in a statement.

“As part of the settlement, JP Morgan acknowledged it made serious misrepresentations to the public - including the investing public - about numerous RMBS transactions. The resolution also requires JPMorgan to provide much needed relief to underwater homeowners and potential homebuyers, including those in distressed areas of the country.  The settlement does not absolve JP Morgan or its employees from facing any possible criminal charges.

Of the $13 billion in total, $9 billion will be paid to settle federal and state claims, while $4 billion will be paid to mortgage consumers harmed by JP Morgan, the DOJ statement said.

“Abuses in the mortgage-backed securities industry helped turn a crisis in the housing market into an international financial crisis,” US Attorney for the Eastern District of California Benjamin Wagner, said in the statement.  “The impacts were staggering. JP Morgan sold securities knowing that many of the loans backing those certificates were toxic. Credit unions, banks and other investor victims across the country, including many in the Eastern District of California, continue to struggle with losses they suffered as a result,” he said.

According to a report by Reuters, JP Morgan's chief financial officer, speaking on a conference call, said the bank had not admitted to violating any laws. CFO Marianne Lake added that the facts the bank admitted to did not leave it vulnerable in other litigation. In other words, the bank and the government did not agree about what they had agreed to in the settlement, capping weeks of squabbling over the terms of the deal, the report said.

The blame game

Authorities say that the sort of conduct JP Morgan has admitted is at the core of what caused the housing bubble and subsequent crash – lenders providing risky mortgages and selling them to investors who thought they were not running undue risks. The Justice Department said JPMorgan accepted it had regularly and knowingly sold mortgages to investors that should have never been sold.

The responsibility of banks like JP Morgan for the crisis is not always clear when set against the actions of politicians and regulators. There remain concerns that the actions of state-backed US housing agencies, such as Freddie Mac and Fannie Mae, for example, helped fuel the crisis by how they – encouraged by changes enacted by legislators – stood behind many of the mortgages sold to the US public. A period of ultra-low interest rates set by the US Federal Reserve is also cited by some commentators as a driving force, as are actions of entities such as rating agencies and the possibly perverse consequences of Basel bank capital rules, accounting standards and risk models, and the “shadow banking” system of financial securitisation.