WATCH: Former Wells Fargo CEO calls BofA fine “extortion”

Kovacevich says fine is political and has “nothing to do with justice”

In the wake of Bank of America’s (BAC) record $16.65 billion settlement with the U.S. Department of Justice, industry observers and insiders have begun to comment on what the implications of the settlement may be.

But for the former CEO of one of nation’s largest lenders, the record fine is nothing more than “extortion.”

In an interview with CNBC, former Wells Fargo (WFC) CEO Dick Kovacevich said that the government is going after the banks “because it can.”

In recent months, the government has settled with many of the largest players in the mortgage world over their financial practices in the run-up to financial crisis.

The BofA settlement exceeds the previous high of $13 billion paid by JPMorgan Chase (JPM) in November to settle similar claims.

The U.S. Department of Justice then used some of that money to speed up its cases against other big banks, like Bank of America and Citigroup (C).

Last month, Citi officially announced a $7 billion dollar settlement with the U.S. Department of Justice, several state attorneys general, and the Federal Deposit Insurance Corporation to settle residential mortgage-backed securities and collateralized debt obligations after industry whispers that the bank was nearing a resolution.

But Kovacevich calls the settlements politically motivated and questions why none of the people truly responsible have been punished.

"Why are we charging the stock holders instead of going after the people who did wrong?,” Kovacevich said. “Corporations don't engage in criminal behavior. They don't take advantage of innocent people. People do.”

Kovacevich said that the settlements are simply “political theater” that has been going on for five years. "It's definitely politics,” he said. “It has nothing to do with justice or restitution to the innocent victims. In fact, more of the money is going to the coffers of the states and various departments than the victims.”

The former Wells Fargo CEO added that if the government truly wanted to prevent a similar crisis in the future, it needs to do more than just fine banks.

“If we want to deter criminal behavior, we have to arrest and try and convict and put people in prison,” he said. “Stockholders are not the reason why we have problems.”

Watch his entire appearance below. 

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