100 Regulators Missed JPMorgan’s London Whale
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The Fiscal Times
June 14, 2012

JPMorgan Chase chief executive Jamie Dimon apologized again Wednesday during his appearance on Capitol Hill for not knowing what was going on in the bank’s London office last April when it unexpectedly posted a $2 billion loss.

But as the trades unfolded, he and the bank’s vaunted risk management committee weren’t the only responsible parties out of the loop as the trades unfolded. More than 100 bank regulators from the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Federal Reserve, who are permanently embedded at the bank to monitor its activities for safety and soundness, also weren’t aware of the size of the risk being taken on by “the London whale.”

That suggested to senators on from both sides of the aisle at yesterday’s Senate Banking Committee hearing that the regulatory agencies may not be up to the task of monitoring the sophisticated trading strategies deployed by large financial institutions, even after passage of the Dodd-Frank financial reform law.

“Is your bank too big to regulate?” asked Sen. Sherrod Brown, D-Ohio, after pointing out that JPMorgan had grown from $607 billion in assets in 1999 to over $2.3 trillion today. “As a practical matter, neither you nor the OCC can manage a bank of this size. ‘Too big to fail’ banks are too big to manage and too big to regulate.”

“Financial regulators are supposed to be monitoring the activities of banks like JP Morgan Chase to ensure that they operate in a safe and sound manner,” said ranking member Sen. Richard Shelby, R-Ala. “As we learned from the most recent financial crisis and this particular incident, regulators do not always meet our expectations.”

The sudden and as yet unexplained loss at JPMorgan dealt a setback to the banking industry’s efforts to scale back regulations contained in the Dodd-Frank financial reform bill. For the past year, they have been successfully skirmishing at regulatory agencies to delay or weaken implementation of the law and challenging the requirements that they set aside more capital to protect against potential losses.

Now, even Republicans, who are usually sympathetic to the banking industry’s complaints about excessive regulation, are taking populist-sounding positions against big money-center banks like JPMorgan. While lawmakers aren’t calling for more regulation or breaking up the banks, they are pushing for raising capital requirements. The Federal Reserve on June 7, as part of the international Basel III agreement, proposed raising the percentage of at-risk assets that banks with $500 million in assets must keep in reserve.

spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.