How many times do you have to say sorry for a 2 billion dollar mistake? Well, considering the 2 billion may just be the beginning of JMorgan's loss, quite a few times. The biggest problem here is one of PR- and effective crisis management. The loss raises serious questions about whether the New York Federal Reserve and other regulators were asleep at the wheel or whether it is asking too much of them to keep up with the financial engineering conducted by complex institutions with diverse, global operations.
The discussion may have migrated from too big to fail to too big to manage and too big to regulate.
the Fed - JPMorgan's primary regulator - is not supposed to prevent
banks from losing money, and JPMorgan remains stable, the shock loss
rattled confidence in the financial sector.
It also raises questions about how attuned regulators were to the botched derivatives trade.
banks have become too large and complex for management to control what
is going on," former IMF chief economist and MIT professor Simon
Johnson wrote on Friday.
"The regulators also
have no idea about what is going on. Attempts to oversee these banks in
a sophisticated and nuanced way are not working."
The timing of the announcement on Thursday was awkward for the Fed.
hours earlier, Fed Chairman Ben Bernanke told a banking conference
that, despite some remaining weaknesses, the stress tests carried out
by the U.S. central bank showed large banks were well on the road to
recovery from the turmoil of 2007-2009.
earlier, Governor Daniel Tarullo, the Fed's point person on regulation,
praised U.S. banks for surpassing expectations as they geared up for
higher capital and liquidity standards under Basel III.
makes everyone look bad," said a banking lawyer, who spoke on
condition of anonymity. "How could anyone have allowed the 'whale' to
make a $10 billion dollar bet? Why didn't the systems pick it up?
debacle may once again force the Fed, which is still trying to repair
its reputation after the 2007-2009 financial crisis, to do damage
control, possibly by strengthening its scrutiny of investment banking.
was supposed to be the 'never again' moment for regulators after
missing the 2008 crisis," Terry Haines of Potomac Research Group said
of the financial-reform legislation, which gave the central bank even
greater oversight powers.
"Now, regulators again
missed a significant event - and again, regulators will double down on
regulatory fixes to cover their own failures."
Silvers, an associate general counsel for the AFL-CIO labor federation
who sat on an oversight panel for the 2008 TARP bailout of US banks,
said the Fed should apply firmer rules to ensure capital adequacy
rather than rely on models.
The Fed has so far decided not to comment publicly on the JPMorgan case.
may well remain silent until more details about the trade are known
before deciding whether any changes are needed to its supervision of
Wall Street. The Fed may also want to ensure JPMorgan and other banks
adjust the way they manage derivatives-trading risks.
to a growing chorus of criticism, Democratic Senate candidate
Elizabeth Warren called for JPMorgan Chief Executive Jamie Dimon to
resign from the New York Fed's board of directors.
shares plunged 9.3 percent on Friday, shedding $15 billion in market
value and leading a broad decline in the financial sector.
(Additional reporting by Dave Clarke in Washington.; Editing by