Chase’s $2 Billion Trading Loss Bolsters Calls for Regulation

Lindsey Kratochwill

JPMorgan Chase’s disclosure yesterday that it has lost $2 billion in the last six weeks through a failed hedging strategy has sparked renewed calls for tougher financial regulation. Senator Bernie Sanders (I-Vt.) released a statement today calling the loss a debacle that needs to be prevented by breaking up the power of the six big banks in the U.S.   In the wake of yesterday’s announcement, Securities and Exchange Commission regulators are already looking into the mega-bank for possible civil violations. According to the New York Times: The inquiry, which is being run out of New York, will probably examine the bank’s past regulatory filings about the internal unit that placed the trades, as well as recent statements from the firm’s top executives.
Sanders has been vocal about the state of big banks for years, and in 2011 he told Ed Schultz on MSNBC: Ed, today, you have six financial institutions, the largest six, that have assets that are the equivalent of 60 percent of the GDP of the United States of America.” Sanders’ full statement from today notes: The debacle at J.P. Morgan Chase reaffirms my view that the largest six banks in this country, including J.P. Morgan Chase, which have assets equivalent to two-thirds of our GDP, must be broken up.  This is important in order to bring more competition into the financial marketplace and to prevent another ‘too-big-to-fail’ bailout. At a time when 23 million Americans are either unemployed or underemployed, huge financial institutions should not be involved in ‘making wagers or high-stake bets.’ They should be investing in the productive economy creating jobs and improving our standard of living.  Other members of the House and Senate are also chastising the big bank.  The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said Representative Barnie Frank, co-author of the Dodd-Frank financil reform law of 2010.  Chase Chief Executive Jamie Dimon, who has touted the bank’s relative success during the financial crisis, has positioned himself strongly against post-crisis regulation--but as Reuters reports, his credibility is substantially undermined by the loss. Dimon says that he does not believe that the hedge trades would have violated the Volcker Rule, which is still in the process of being finalized. The rule would restrict the ability of banks whose deposits are federally insured from trading for their own benefit.” But Sen. Carl Levin (D-Mich.) says the rule would have likely prevented what just happened to JPMorgan. Levin told CNBC “If the regulators do what the law says and define hedging properly, this activity would not be permitted.” Earlier this year, an offshoot of Occupy Wall Street called Occupy the SEC drafted a letter criticizing the Volcker Rule and offering their own suggestions: During the legislative process, the Volcker Rule was woefully enfeebled by the addition of numerous loopholes and exceptions.  The banking lobby exerted inordinate influence on Congress and succeeded in diluting the statute, despite the catastrophic failures that bank policies have produced and continue to produce.
Lindsey Kratochwill, an In These Times editorial intern, is student at Northwestern University’s Medill School of Journalism.
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