Regulators are closely watching for repercussions of the massive $2 billion loss by JPMorgan trading position.
The trading position that led to a whopping $2 billion loss for banking giant JPMorgan Chase may result in an increase in Federal Reserve scrutiny of risk management. The central bank is now upping its post-crisis supervision of lenders.
Who Knew What
A number of questions are being asked, too. For instance, as the Fed gathers information about the bank’s position, many are asking if it should have been gathering information beforehand versus after the fact. Fed officials have known for several weeks – though it’s not been determined exactly how many weeks – according to several sources close to the investigation.
They continue to insist they do not view it as part of their role to approve or reject individual trades. Instead, the sources say, the mindset is to ensure firms have the capital needed to withstand losses, which it appears JPMorgan has.
JPMorgan’s eccentric and controversial Chief Executive Officer Jamie Dimon announced the “egregious” trading loss on May 10. He admitted there were many errors, no shortage of sloppiness and entirely too many bad choices made. It’s likely he’ll be hauled in front of Congress at some point, though no one’s commenting. Dimon reiterated during a conference call with analysts that while the firm kept its regulators “up to date,” he “didn’t have great information” to share with them.
Dimon and Controversy
These comments have many folks speculating. “The fact that Jamie Dimon could come out and make some of those statements” raises “lots of questions about who was watching the store,” said Robert Eisenbeis, chief monetary economist at Sarasota, Florida-based Cumberland Advisers and a former Atlanta Fed research director. Now, the general consensus is that the Fed should be “going in and looking at the internal controls and monitoring procedures that the institution is taking, and stress those.”
These losses are at least two months old, which suggests many knew about this for weeks before it hit the breaking news level. The announcement also comes after JPMorgan easily passed what’s known as a Fed “stress test” that put its loans and securities through a scenario of deep recession and a simulated global financial market shock.
Insists this is Small Loss
“It’s a relatively small loss in a bank of that size,” said William Isaac, a chairman of the Federal Deposit Insurance Corp. during the 1980s and is now a senior managing director at FTI Consulting Inc. He continues,
The thing that’s rattling people is JPMorgan Chase is widely considered one of the strongest and best banks in the world.
But, can the bank withstand yet another scandal that’s not sitting well with the general public? Most betting folks say not only will the bank glide through, but its CEO will as well.
The bank’s shares fell 9.3 percent following the announcement. This is the biggest drop in nine months. It was down to $36.96 at the close of trading yesterday in New York. The KBW Bank Index (BKX) of 24 financial stocks was down 1.2 percent.
In the meantime, The Commodity Futures Trading Commission, which is the primary derivatives regulator, has been reviewing JPMorgan’s behaviors and decisions leading to the error. Some media are reporting several government agencies could open their own investigations.
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