Big BofA fine is government extortion: Kovacevich

BofA settlement political theater: Kovacevich
BofA settlement political theater: Kovacevich

The $16.65 billion settlement by Bank of America over financial crisis-era mortgage securities highlights a pattern of the government extorting the banks, said Dick Kovacevich, former Wells Fargo chairman and CEO.

"It's definitely politics. 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," Kovacevich said Thursday on CNBC's "Squawk Box."

The BofA payout—the largest in a series of soaring penalties against banks for a range of misconduct—was announced Thursday.

Read MoreBank of America in $16.65B mortgage settlement: DoJ

Kovacevich said the amount of the settlement is not surprising. "If indeed JPMorgan should pay $12 billion or $13 billion for the sins of Bear Stearns and Washington Mutual, certainly Merrill Lynch and Countrywide did two or three times the volume."

While legally sound, he continued, "JPMorgan or its employees or Bank of America or its employees did anything wrong here. They just bought companies that did wrong."

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

"They are going after corporations because they can," he continued. "They aren't going after the individual because it takes a long time to do so."

But there may be a case developing against a key figure associated with the subprime mortgage mess. Prosecutors are preparing a civil lawsuit against Angelo Mozilo, co-founder of Countrywide Financial, according to the Financial Times.

BofA bought Countrywide in 2008.

By CNBC's Matthew J. Belvedere. Reuters contributed to this report.