JPMorgan's loss of $2 billion shows that the forces that
unleashed the recession remain partially untamed - and that Congress
is still struggling to get a handle on the solution.
The fallout from a massive investment loss at JPMorgan Chase
continued to spread Wednesday, as shareholders filed lawsuits
against the bank and members of Congress used the incident to defend
strong bank regulation - or to promote more of it.
Investors filed two lawsuits against the firm, alleging that the
firm took undue risks and made misreprentations to shareholders
prior to last week, when the firm announced the losses. Chief
executive officer Jamie Dimon called the trading errors "egregious"
and the losses "self-inflicted."
In Congress, lawmakers used a hearing on bank regulation to raise
concerns about the JPMorgan investments that went awry. Some
lawmakers argued for breaking up the largest banks, which include
And Sen. Bernie Sanders (I) of Vermont called for new legislation
to remove conflicts of interest between regulators and Wall Street
banks. Two-thirds of the Federal Reserve's regional-bank board
members are appointed by the banking industry, Senator Sanders noted
in a letter to his fellow lawmakers. Mr. Dimon is now serving as a
director of the Federal Reserve Bank of New York.
All these developments are signs that, more than three years
after a financial crisis plunged America into a deep recession, the
question of how to maintain a healthy bank system is still a hot one
- and that industry's risks remain at least partially untamed by new
laws or managerial self-discipline.
Even before the loss made headlines, congressional hearings were
under way on how to implement the Dodd-Frank banking reforms of
2010, and whether additional changes should be made to financial-
Among the important questions being considered:
How to implement the so-called "Volcker rule" in Dodd-Frank to
limit banks' investment activity.
Whether to break up large banks - a legislative long shot,
supported by some lawmakers.
Whether some broader constraints on financial risk are needed.
Now, the JPMorgan loss has colored all these conversations, with
both sides employing it for their arguments.
Sen. Bob Corker (R) of Tennessee last Friday urged the Senate
Banking Committee to hold a hearing on what the debacle implies for
bank-system soundness. JPMorgan's loss arose from credit-derivative
bets on European corporate debt, involving a trader who became known
in credit markets as the "London Whale."
Rep. Ed Royce (R) of California on Wednesday used the JPMorgan
affair to defend a post-crisis boost in the capital cushion that big
banks are required to hold - a shift that some critics have said is
harming economic growth. "I hope that recent incidents put that
argument at rest," Congressman Royce said at a House Financial
Services Committee hearing, eliciting agreement from one of the
regulators testifying. …