Fallout From JPMorgan Chase’s $2 Billion Loss
Posted on May 11, 2012
JPMorgan Chase & Co. weathered the 2008 financial crisis without reporting a loss. But a failed hedging strategy that recently cost the company $2 billion has called into question the ability of its leaders to manage risk and intensified the debate on banking reform.
The loss challenges JPMorgan CEO Jamie Dimon’s opposition to the Volcker rule, a reform proposed by economist and former Fed Chairman Paul Volcker, that would curb banks’ abilities to use their own money to make speculative investments through what is known as “proprietary trading.” Economists believe such dealings contributed to the 2008 financial crisis. —ARK
Regulators and lawmakers are now likely to push Dimon for more details about the trades. Those details will guide how regulators now view the issue and its impact on the Volcker rule, said Karen Petrou, managing partner of Washington-based Federal Financial Analytics.
If the trades were meant to hedge against specific risks as opposed to clearly being done as a proprietary bet on the markets, it may not play as clearly into the Volcker rule debate as supporters of the crackdown want it to, she said.
Dimon said he remained opposed to the Volcker rule.
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