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Federal regulators are putting JPMorgan hedging loss on inadequate risk management

The loss doesn’t hold a large threat to the financial system

Federal regulators are putting the blame for JPMorgan Chase’s $2 billion loss on “inadequate risk management.”

Thomas Curry, U.S. comptroller of the currency, told the Senate that JPMorgan reduced the amount of hedging at the end of 2011 to minimize potential losses. According to the Associated Press (AP), Curry’s agency examined JPMorgan policies before the company suffered the trading loss. He added on that an extensive review is being done that “will focus on where breakdowns or failures occurred.”  

New Jersey Senator Robert Menendez pressed on whether Curry had “screwed up” in failing to catch the losses earlier, and Curry responded, “We’re going to critically look at that question.” Curry added the review would be finished in the next “several weeks.”

Federal regulators from the Treasury Dept, Federal Reserve, Federal Deposit Insurance Corp. and Consumer Financial Protection Bureau all stated to the Banking Committee that the blow to JPMorgan hadn’t put the financial system in any threat.

Dan Tarullo stated JPMorgan’s capital cushion was able to handle the losses. Mendez believes otherwise, stating, “I think the blood will be on all of your hand if the ‘London Whale’ goes belly up next time…What’s to stop them from losing billions more next time? Or more significantly, for a less capitalized bank from incurring a loss that can bring it down?”

From CNNMoney, regulators are saying the loss will have rules mandated in the 2010 financial overhaul law will be tightened. Also, Volcker Rule debate has been rehashed—regulators are re-working this rule, which is said to take effect in Jul;, though, banks have until July 2014 to meet standards.

Jamie Dimon has voiced before his opposition to the Volcker Rule. Wall Street banks have been granted exemption to the rule—this would make hedging risky not only to individual investments but larger investment portfolios.

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