White House urges bank reforms after JPMorgan loss
Automobiles pass a JP Morgan Chase building Thursday, May 10, 2012, in New York. JPMorgan Chase, the largest bank in the United States, said Thursday that it lost $2 billion in the past six weeks in a trading portfolio designed to hedge against risks the company takes with its own money. The company's stock plunged almost 7 percent in after-hours trading after the loss was announced. Other bank stocks, including Citigroup and Bank of America, suffered heavy losses as well. (AP Photo/Frank Franklin II)
WASHINGTON – The White House stepped up pressure for tighter bank regulation Monday after JPMorgan Chase’s $2 billion derivatives loss, as the bank said the top official responsible for the loss had resigned.
Pressing a policy line that JPMorgan chief Jamie Dimon had strenuously fought, the White House said the loss was more evidence of the need to place tough controls on banks seen as systemically “too big to fail.”
“This event even only reinforces why it was so important to pass Wall Street reform, why it is so important to fully implement Wall Street reform,” said presidential spokesman Jay Carney.
“Ever since it passed, there’s been millions and millions of dollars spent by Wall Street lobbyists to try to water down, delay, and render ineffective those rules,” he said.
“It only reinforces why the president was right to take on this fight and why we need to make sure it’s implemented.”
Investors punished the bank’s shares again Monday, sending them 3.2 percent lower, as JPMorgan announced that chief investment officer Ina Drew was stepping down and news reports said more heads were likely to roll.
Drew, 55, one of the highest-ranking women on Wall Street, will retire after more than 30 years at the bank, JPMorgan said.
On Thursday the bank revealed that its chief investment office (CIO), which Drew had led, racked up at least $2 billion in losses over six weeks on trading its own assets in the complex derivatives market.
“Despite our recent losses in the CIO, Ina’s vast contributions to our company should not be overshadowed by these events,” Dimon said in a statement.
Drew had previously tendered her resignation after the extent of the losses became apparent in late April, but Dimon had refused to accept it until now, according to US media reports.
No mention was made in the statement of any of the other CIO officials reportedly involved in the loss.
The Wall Street Journal though named two other London-based traders who would likely be pushed out this week.
The giant loss, disclosed just weeks after Dimon had denied any troubles, brought a renewed push to stop banks from making risky, huge bets with their own assets to help push up profits — the so-called proprietary trade.
Dimon has led the Wall Street push to block such controls, especially the Volcker Rule, which would ban most aspects of the proprietary trade, including possibly what JPMorgan’s CIO was doing when it incurred the loss.
“We’ve got to be very, very careful that the regulators here are not undermined by this huge effort to weaken the (Volcker) Rule, by putting in a huge loophole,” said Senator Carl Levin on Sunday.
“The issue is whether we are going to stick with the law, as written, which will prevent us from bailing out banks again,” he said.
Dimon himself admitted Sunday on NBC television that the loss had jeopardized JPMorgan’s credibility and the banking industry’s fight against tighter controls. “This is a very unfortunate and inopportune time to have had this kind of mistake,” he said.
But analysts said the push for tighter controls on bank activities could come up against the need to give them room to help put more spark in the slow-moving economy.
“Capitol Hill is still enraged over the recent loss at JPMorgan and is using the incident to fuel the argument for more banking regulation,” said Chris Low at FTN Financial.
But “it remains unclear how much momentum the incident will provide for implementation of additional regulation when the economy actually needs looser credit terms,” he added.
