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…)