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For decades the agencies that regulate the nation s major bankshave had their own employees imbedded in the banks themselves. The regulators run regular exams to make sure the banks are playingby the rules. They get the same reports the top officials of thebank receive. And, since many of the regulators are former bankers,they generally know what they are looking for. So were the regulators on top of the situation at JP Morgan Chase,which announced last week it would lose at least $2 billion ininvestment bets gone awry? If or when Congress holds hearings on the Chase losses, that willlikely be a key question for lawmakers, assuming they invite theheads of the Office of the Comptroller of the Currency (OCC) andthe Federal Reserve Bank of New York to testify. But considering that the top echelons at JP Morgan might not haveknown of the impending losses, the answer to that question mightnot be very satisfactory. The bank s loss is a congressional concern because it raisesquestions about the future implementation of the so-called Volckerrule, part of the financial reform legislation that passed afterthe collapse of the mortgage market in 2008. The Volcker rule, named for the former chairman of the FederalReserve, seeks to prevent a large bank failure (that might requirea taxpayer bailout) by prohibiting banks from speculative tradingfor their own investment account. JP Morgan s CEO, Jamie Dimon, has become one of the bankingindustry s leaders in arguing against strict rules in implementingthe legislation. For sure, this JPMC episode will give regulators some backbone inholding firm, writes Robert Bench, a senior provost fellow at theBoston University Center for Finance, Law & Policy and a formerdeputy comptroller of the currency in the Reagan administration, inan email. However, the Volcker rules have yet to be implemented, pointed outthe OCC in a statement on Tuesday. Even if both (the Volker ruleand Dodd-Frank) were assumed to be in effect, the transactions atissue are complex, and whether they would qualify for exceptionsunder the statute or proposed rule requires careful analysis, itsaid. The regulators, meanwhile, should have had plenty of warning aboutthe problems brewing at JP Morgan, some analysts argue. On April6th, the Wall Street Journal and Bloomberg News both wrote a storyabout a Britain-based JP Morgan trader, called the London Whale because of his enormous financial positions in the derivativesmarkets. Derivatives are instruments designed to replicate theprice movements of a basket of items such as currencies,commodities or stocks. They can be used by financial companies tohedge their positions. One would have thought after the Wall Street Journal articleabout the London whale, the OCC and the Federal Reserve would havebeen making inquiries as to the substance of that story and lookinginto the activities of the trader and the size of the position andthe risks inherent in that position, says Mr. Bench in aninterview. However, some wonder whether even if the regulators discoveredthe trades there was anything that should be done. It is not the responsibility of the regulators to stop a bankfrom losing money, says Myra Rodriguez Valladares, a consultantwith her own firm MRV Associates and a former analyst at theFederal Reserve Bank of New York. They should only step in ifcould become a systemic issue or taxpayer problem. In JP Morgan s case, the losses so far are relatively smallcompared to the size of the bank. It is a point that CEO Dimon islikely to make at the bank s annual meeting, which is being heldTuesday in Tampa, Fla. Even though the bank has said it has lostover $2 billion, Mr. Dimon has indicated it will still make about$4 billion in the first quarter. On Monday, the OCC issued astatement that said, The loss by JPMC affects its earnings, butdoes not present an issue of safety or soundness for the bank. So far, the regulators themselves are keeping quiet about what theydid or did not know. Neither the OCC or the New York Fed wouldanswer a direct question whether they were aware of the large loss. Former bank regulators, however, think the regulators probably onlywere aware of what the senior management of the bank knew. Inshort, they most likely were not aware of the burgeoning losses. I am an expert from portablepaamplifier.com, while we provides the quality product, such as Cardioid Dynamic Microphone Manufacturer , China VHF Wireless Microphone, Rechargeable Portable Wireless Amplifier,and more.
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