Financial Regulatory Forum

JPMorgan’s massive spending on controls underlines “aggressive” relations with regulators

By Henry Engler, Compliance Complete

NEW YORK, Sept. 24 (Thomson Reuters Accelus) - What was once a more consultative relationship between JPMorgan and its regulators has turned into an environment of aggressive demands to reshape the banking giant, say bankers.

With news the largest U.S. bank has settled one set of charges for $920 million and is bracing for more legal and regulatory scrutiny in the coming weeks and months, insiders say the most noticeable change has been the regulators’ use of “consent orders” to enforce wholesale changes across the institution’s risk management controls and systems. (more…)

Mortgage lawsuit against JPMorgan offers refresher on basic compliance lessons

By Stuart Gittleman

NEW YORK, Oct. 3 (Thomson Reuters Accelus) - Securities issuers that claim to have conducted due diligence on their offerings should address and remediate problems found and not ignore red flags, as made clear by the New York state fraud lawsuit against JPMorgan over they way its Bear Stearns unit dealt in mortgage securities. (more…)

Beyond the numbers: do banks manage risk?

By Rachel Wolcott

LONDON, June 14 (Thomson Reuters Accelus) - It may seem like a subtle difference, but most of what banks call ‘risk management’ is often more akin to ‘risk measurement’. It is a myth that banks are in possession of fancy gadgetry that allows them to measure risk on a minute-by-minute basis from a specialised risk-control tower and react to it effectively, thus averting catastrophe. Instead, the financial crisis and trading losses, such as JPMorgan’s $2 billion blow-up in May, have shown that by the time banks measure and understand their risks, it is too late. Risk management is not about controlling risk, but about offsetting its impact after the fact.

Far from being a powerful high-tech unit within a firm that is charged with hedging risks on a macro basis — the way, for example, that JPMorgan’s chief investment office has been portrayed — risk management is more fragmented and limited. That is why many banks were badly hit when Lehman Brothers collapsed in 2008. It was just too difficult to get a picture of what their positions, exposures and risks were, let alone manage them. This is because, in many cases, banks’ risk management still has more to do with number crunching and measuring risk for compliance and regulatory purposes, such as regulatory capital requirements, credit value adjustment and counterparty risk. Managing risk, however, is something few firms do well, and they are certainly unable to do so in a holistic way. (more…)

Offshore U.S. oversight of derivatives may bolster defenses against JPMorgan-type losses

By Nick Paraskeva

NEW YORK, May 29 (Thomson Reuters Accelus) – U.S. regulators are looking to use new their oversight authority over foreign derivatives trades to reduce the chances of new shocks such as JPMorgan Chase & Co’s trading loss of at least $2 billion.

Pointing out that JPMorgan’s money-losing trades on a credit default swap index were conducted in a London unit, similar to recent failures at AIG and Lehman Brothers, Commodity Futures Trading Commission Chairman Gary Gensler said implementation of Dodd-Frank regulatory reform rules would improve supervision of such activity in the future by expanding cross-border oversight. (more…)

JPMorgan case puts Volcker Rule and SIFIs back in the spotlight

By Patricia Lee

NEW YORK, May 23 (Thomson Reuters Accelus) – The massive losses which resulted from JPMorgan Chase hedging its positions against derivatives has once again cast the spotlight on the Volcker Rule and whether systemically important financial institutions (SIFIs) are too big to fail, industry observers said. Questions have also been raised about the firm’s hedging strategy, and what constitutes hedging in the first place.

Industry officials in Asia suggested that JPMorgan’s $2 billion hedging losses might embolden regulators to strengthen the Volcker Rule, on the premise that it would be of benefit to SIFIs. The rule, named after former Federal Reserve chairman Paul Volcker, forms part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and has proposed the separation of proprietary trading from commercial banking activity. Most notably, it has argued against investing in derivatives or using derivatives as a hedge on investments. The rule has, however, faced strong opposition from many of the large global financial institutions. (more…)

Investor group seeks JPMorgan governance changes

By Emmanuel Olaoye

NEW YORK, May 18 (Thomson Reuters Accelus) – A labor-backed investor group critical of JPMorgan Chase & Co’s corporate governance said the bank has failed to address concerns over its risk oversight and it will try to rally other shareholders for changes after a $2 billion trading loss.

CtW Investment Group, which advises labor pension funds holding what it said are 6 million shares in JPMorgan, has advocated for risk governance changes there for more than a year. The risk policy committee of the bank’s board lacks the expertise to understand risks the bank is taking, such as the complex “London Whale” transactions that led to last week’s loss disclosure, a CtW official said. (more…)

JPMorgan AGM punctured by thorny hedge issues

By Christopher Elias

LONDON/NEW YORK, May 17 (Business Law Currents) - JPMorgan’s disastrous $2 billion hedge loss has raised some thorny issues on management oversight, corporate governance and the effectiveness of the Volcker Rule, as division at the banking giant’s annual general meeting highlight a growing tension between its shareholders and management.

Little more than a week ago, prior to Tuesday’s annual general meeting (AGM), JPMorgan announced that it had incurred a $2 billion loss as a result of a hedge gone wrong from its London offices with the possibility of $1 billion in additional losses to follow. (more…)

JPMorgan repeats basic mistakes managing traders, say officials

By Rachel Wolcott

LONDON/NEW YORK, May 15 (Thomson Reuters Accelus) – JPMorgan’s Chief Investment Office, which last week was responsible for more than $2 billion in mark-to-market losses, appears to have made some classic mistakes in the risk management of trading desks and the monitoring of traders. Although the CIO losses have not been blamed on a rogue trader, they do have much in common with the incidents at UBS and Société Générale, where single traders lost billions seemingly overnight.  (more…)

JPMorgan may tip Wall Street’s hand on ploys to beat Volcker

By Rachel Wolcott

NEW YORK, May 14 (Thomson Reuters Accelus) - JPMorgan Chase & Co’s revelation that it had trading losses of at least $2 billion on a failed hedging strategy may have tipped the hand to one way Wall Street executives plan to get around the Volcker Rule.

The incident shows how firms could use the pending rule’s hedging exemption to do proprietary trades and still technically be compliant with Volcker. It could allow firms to keep some proprietary trading desks, but portray them to regulators as something else, such as portfolio hedging. (more…)

A letter to JPMorgan: Dimon is wrong -COLUMN

By Anat Admati, guest columnist. The views expressed are her own

PALO ALTO, California, June 15 (Thomson Reuters Accelus) -

Dear JPMorgan Chase Directors

I own some JPMorgan Chase (JPM) shares through mutual funds in my retirement account. I have read Mr. Dimon’s recent letter to shareholders and some of his public comments. I write to urge you to reconsider JPM’s actions related to capital regulation. For the overall economy, as well as for JPM, these actions are misguided. (more…)

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