Editor's note: Yves Smith is the creator of the influential financial and economics website Naked Capitalism and author of the book ECONNED: How Unenlightened Self-Interest Undermined Democracy and Corrupted Capitalism. The opinions expressed in this commentary are solely her.
(CNN) -- French officials exploded in outrage after BNP Paribas agreed to plea guilty to criminal charges, pay nearly $9 billion in fines, and have access to dollar clearing suspended for a year for its persistent violations of US economic sanctions against Iran, Cuba and Sudan.
The international bank fell under US jurisdiction by virtue of facilitating transactions in dollars which passed through the US.
Most financial commentators had little sympathy with the French position, since the giant bank's conduct was egregious. It included ongoing records-doctoring to hide the true identity of customers and stymieing the US investigation.
But the French argument was essentially political: that the US had no right to impose its will on a foreign bank, and these transactions were legal under European law.
Yet this is far from the first time the US has used its position as issuer of the world's reserve currency to advance its foreign policy agenda.
For instance, in the Suez Crisis in 1956, Britain's need for dollar credit to defend the pound enabled the US to force Britain and France to pull back from military confrontation.
The economic reality is that the US derives considerable power from its role as the issuer of the world's reserve currency and its control over dollar-based payment systems. Large banks run huge volumes of transactions with each other during the day.
They are willing to do so because these systems are ultimately backstopped by the Federal Reserve.
While parties unhappy with America's use, and some would contend abuse, of US dollar dominance, financial institutions could set up dollar transaction mechanisms that completely skirted the US. But with low volumes and no Fed protection, they'd be vastly higher cost.
The other alternative is to try to encourage more use of non-dollar currencies, like the euro and China's renminbi.
But the euro has no benchmark bond, plus continued concerns about political fracture and sovereign bond restructurings mean it's not a contender to replace the greenback any time soon. And even though China has been aggressively promoting trade denominated in the renminbi, the volume is puny, a mere 1.5% of the global total.
But putting aside the international row, what does the BNP Paribas settlement say about addressing misconduct at too big to fail banks?
Perversely, while banks are wards of the state and get more support and subsidies than any other type of business (for instance, ZIRP and quantitative easing are massive transfers from savers to financial players), the authorities have lacked the will to discipline them effectively.
Even though the BNP Paribas fine exceeded a year of earnings, the bank's stock rose 3.6% when the deal was announced, saying that investors though BNP Paribas had done well.
The conundrum is indicting a bank at the parent level is widely perceived to be a potential death blow, since many counterparties would have to stop doing business with it immediately.
Removing the US banking licenses of a serial fraudster, another possible remedy, would similarly put a US firm out of business and would inflict severe, permanent damage on a big foreign bank. Hence the tendency of officials to rely on big, or at least big-sounding, fines.
But it is bankers, not banks, that commit crimes.
Here, the BNP Paribas deal falls short. True, 13 officers were forced to resign, including one of its chief operating officers. But he was on the verge of retirement, and more important, no one was charged criminally or fined.
By contrast, in 1991, when Salomon Brothers failed to curb a trader that was repeatedly gaming government bond auctions, Salomon's CEO, vice chairman, and president departed abruptly.
We've seen nothing like that punishment meted out to top executives in the post-crisis wave of investigations.
And until that happens, banks will continue to behave as if they have the upper hand.