Is Standard Chartered a 'rogue institution', as the New York state department of financial services alleges ? Or is the new US body a rogue regulator led by a lawyer, Benjamin Lawsky, seeking to make his name in the style of Eliot Spitzer, one-time scourge of Wall Street before his downfall ?
It has to be one or the other because the positions of the two sides are miles apart. The New York DFS alleges that Standard Chartered hid $250bn (£160bn) of transactions with the Iranian government by falsifying records.
The bank maintains Lawsky is talking rubbish. It says 99.9% of the transactions disclosed to regulators complied with the rules and that the infringements involve the relatively modest sum of $14m.
Further, Standard Chartered asserts that the DFS's interpretation 'is incorrect as a matter of law'.
An honourable draw isn't possible here. Consider the tussle as a head-to-head confrontation in the Olympic velodrome: somebody will win, somebody will be eliminated.
The stock market's reaction was to knock 20% off Standard Chartered's share price. That's not investors prejudging the facts. They are just reflecting the possibility that, in a single blow, the bank could lose its reputation, a chunk of its senior management and its licence to process dollars in New York. The risk of a triple whammy may still be remote but it has to be priced.
Standard Chartered, don't forget, is an institution that likes to think of itself as a cut above the rest. The reason it hasn't got into scrapes, management likes to proclaim loudly and often, is because it conducts itself properly.
Consider this self-congratulatory statement by the chairman, Sir John Pease, only last week: 'In recent weeks, issues have surfaced around governance and behaviour in banking. At Standard Chartered, we believe it is not just about what we do, but how we do it. Our culture and values continue to be a source of strength and a competitive advantage. Strong corporate governance and an obsession with the basics of banking remain key areas of focus for our board'.
Pease, we must assume, would not have chosen to sound so puffed up if he had known that Lawsky was about to publish his explosive allegations. The timing is an unusual aspect of this tale. Scandals in banking-land or, rather, their revelation, tend to be choreographed when regulators become involved. The existence of an investigation is often known (and it was at Standard Chartered) but the details of the wrong-doing, the admission of fault and the nature of the punishment tend to be published simultaneously.
That's how the plot worked with Barclays and Libor-rigging – the Financial Services Authority issued its final notice, imposed a £290m fine and the directors made a grovelling apology. Similarly, HSBC said sorry immediately when a US senate committee said the bank's lax systems had allowed drug cartels to launder money.
In the Standard Chartered case, the choreography has collapsed. The bank complains that it was in discussions with five US agencies, including the US department of justice, and was surprised to receive the New York DFS's order. It grumbles that 'resolution of such matters normally proceeds through a co-ordinated approach by such agencies'.
Fair point. So why did the DFS go public ? It's not clear. Is Lawsky, who has argued that regulators do too much in secret, trying to maximise his profile and that of his 10-month-old department ? Or was Standard Chartered deemed not to be co-operating with the investigation ?
Of more concern to Standard Chartered shareholders will be the size of the transactions involved: $250bn. The bank's two-sentence summary of the investigation in its recent results statement gave no hint that the affair could be that big or that regulators might seek to revoke the licence to operate in New York. Now they know. If the chief executive, Peter Sands, is to survive in his post, he needs to be vindicated in full.
Mind you, Lord Davies, the lauded former chief executive and then chairman during the period under scrutiny, would also be dragged into the affair if Standard Chartered ends up paying a fine that investors might regard as tolerable – say, the $600m at which Dutch bank ING settled similar allegations.
Such sums don't ruin profit and loss accounts at banks as successful as Standard Chartered – but they do undermine reputations.
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