Over the next 13 days, Congress will examine JPMorgan’s extraordinary multibillion-dollar trading loss from its London office. The bank’s regulators, along with CEO Jamie Dimon, are slated to testify over the course of two Senate hearings and one House hearing.
Vital policy issues will be shaped with information about this loss, which cost JPMorgan shareholders more than $25 billion in market value.
At the June 6 hearing before the Senate banking committee with JPMorgan’s regulators, senators should explore regulatory failures and how compensation figured in the trades.
JPMorgan said that its regulators were “comfortable” with its London position. Senators should explore why regulators may have viewed this as an acceptable loss in the ordinary course of business. If regulators were not aware of the potential loss at the time, senators should explore why they may not be capable of detecting such a complex position that could lead to the failure of the bank. What the bank now calls a “badly conceived” trade was previously termed a “tempest in a teapot” by Dimon, arguing that the nation’s largest bank and best respected manager failed to understand it.
The presidents of both the Dallas and St. Louis Federal Reserve Banks recently have argued that some banks remain too big and complex to manage and supervise. Senators should follow the lead of these presidents and press the regulators on the importance of the soon-to-be-implemented Volcker Rule, including whether the so-called hedge would comply with the proposed guidelines.
Compensation likely factored in these risky bets. More than 94 percent of the chief investment officer’s pay came from “incentive” compensation. While the Federal Reserve issued guidance about pay in 2009, senators should explore in this hearing whether additional supervision is necessary, including implementation of delayed Dodd-Frank rules.
These hearings will test Wall Street’s political grip on Washington policymakers. Congress will ill serve the American public if it allows JPMorgan and its regulators to escape without generating important new information and answers to these critical issues.