Tougher Regulation Demanded After $2B Trading Loss at JPMorgan

JP MorganOn Friday, JPMorgan Chase was strongly criticized for stating that the $2 billion loss its trading group suffered was due to a tactic for handling financial risks that meant well but was executed poorly. Three years after the near meltdown of the financial sector, the huge blunder was referenced as evidence that the largest banks in the country are still not concerned about the potentially disastrous impacts of their financial speculations.

A former economist, Simon Johnson, who has previously worked with the International Monetary Fund, stated that the incident was proof that the banks were not capable of managing risks, and a failure by JPMorgan indicated that no bank was likely to fare any better.

JPMorgan is the single biggest bank in the country, and of the banks that continued to make profits in 2008 during the global financial crisis, JPMorgan stood alone as the sole major bank that fared well. This made Jamie Dimon, the bold and brash CEO of the company, seem more credible when he talked about how banks didn’t need closer oversight or stricter regulation after the financial collapse.

However, Dimon’s recent statements that JPMorgan’s $2 billion in losses were the result of a mistaken attempt at hedging and not at a bet that turned sour based on the bank’s money, was met with doubt and ridicule in the financial, political, and economic industries.

Senator Car Levin, the chairperson of a committee created in the senate to look into the financial crisis, stated that JPMorgan’s error was not merely an edge, but rather a significant bet on how the economy would turn, which was more in line with the suggestion of reports published on the error.

Jamie Dimon spoke to NBC News on Friday in an interview that will air on Sunday’s “Meet the Press.” During the interview, he stated that he was not aware whether or not JPMorgan would find itself afoul of any regulations, rules, or federal laws. He added that the bank was quite open to speaking with federal regulators.

Mary Schapiro, the leader of the SEC, or Securities and Exchange Commission, addressed reporters and told them that while the SEC was going to pay attention to the loss suffered by JPMorgan, they did not have any additional comments at that time.

The news released by JPMorgan on Thursday gave fresh life to an ongoing debate regarding how to make sure banks could still be free to make lots of money without permitting them to grow to the point where they could take down national or global economies when they deliberately or erroneously made bad decisions.

The loss suffered by JPMorgan did not lead to any significant panics reminiscent of those that occurred in 2008 after the Lehman Brothers bank failed in September of that year, but the financial industry still seemed rather shaken and less confident after the news became public.

Once trading started on Wall Street, there was a close to 10 percent drop in the stock value of JPMorgan, which represented a loss of close to $15 billion in the current market environment. JPMorgan stock would eventually close 9.3 percent lower than it opened.

The credit rating of the bank was decreased by a step by Fitch Ratings, while S&P, or Standard & Poor, reduced its outlook for JPMorgan to a “negative” rating, which suggested that they were likely to reduce the credit rating of the bank in the near future.

Jamie Dimon did not release much information regarding the disastrous trades that occurred on Thursday besides indicating that they had to do with synthetic credit positions, which are a form of derivatives.