‘Scale’ of JPMorgan Risk Strategy Not Common: Regulator

The primary regulatory over JPMorgan Chase said the banking giant’s trading losses of more than $2 billion does not threaten its financial health or the broader financial system, but risk management strategies are being evaluated at other big banks.
Thomas J. Curry, the Comptroller of the Currency, said in written testimony for a hearing before the Senate Banking Committee today that the OCC is directing examiners to evaluate risk-management practices at other large banks.
Curry said “no activity similar to the scale or complexity” of JPMorgan’s has been reported, but “this is a continuing focus of our supervision.”
The Senate hearing is the first public discourse and feedback on the roles played by the OCC, the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department in the time leading up to JPMorgan CEO Jamie Dimon’s stunning disclosure on May 10 regarding the trading losses tied to credit derivatives.
The losses resulted from modified hedging strategies out of the bank’s Chief Investment Office, or CIO.
Curry said the financial instruments chosen by the bank to execute its credit hedging were not identical to those used in the original position – and that shift introduced “basis, liquidity, and other risks” during the first quarter of 2012.
Dimon is scheduled to appear before the Senate panel on June 13.
“Whether risk management controls, procedures, and reports were properly structured, reviewed, approved, and acted upon in the execution of this strategy is another focus of our ongoing examination,” Curry said.
The OCC has been meeting daily with JPMorgan management about its response to the trading losses and “to re-evaluate the risk management activities and controls of the bank and how they applied to its CIO function, and to determine what additional action is necessary,”
Curry said the lessons learned from the JPMorgan episode should enhance risk control management at all national banks regulated by his agency and should “improve OCC supervisory approaches.”

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