By Jonathan Spicer
NEW YORK, May 15 (Reuters) – Regulators first raised
concerns in April about trading positions that led to a $2
billion-plus loss at JPMorgan Chase & Co, and they posed
questions to senior management at the bank, a source familiar
with the situation said on Tuesday.
The U.S. Federal Reserve – JPMorgan’s primary regulator – as
well as the Office of the Comptroller of the Currency and the UK
Financial Services Authority were all involved in monitoring the
bank’s portfolio that suffered the big derivatives trading loss,
the source said.
The shocking loss at one of Wall Street’s most respected
banks has raised questions over how aware regulators were of the
risky trading, and how well they understood it, given that the
Fed and the OCC have supervisors physically embedded at JPMorgan
offices.
Though JPMorgan Chief Executive Jamie Dimon revealed the
loss last week, media reports in early April said that a
UK-based trader at the bank, dubbed the “London Whale,” was
playing a dominant role in certain markets.
“It was on regulators’ radar from April,” when they began
asking questions of the bank’s senior managers and risk
managers, said the source, who requested anonymity.
Representatives of JPMorgan, the Fed, and the FSA declined
to comment. An OCC representative was not immediately available
for comment.
The Federal Reserve Bank of New York has up to 40
supervisors “embedded” at JPMorgan, as well as teams at the
other primary dealers it oversees. The OCC has teams of similar
size at the banks it regulates, while the FSA, which is
responsible for UK-based banking, does on-site supervision but
not embedding.
The Fed, whose reputation was tarnished by the financial
crisis, last year ramped up the number of supervisors embedded
at banks and assigned more senior officials to lead the on-site
teams.
“I think it’s good to have them on-site. It does enhance
their understanding of what is going on,” Sheila Bair, former
chairman of the Federal Deposit Insurance Corp, told Reuters in
Washington.
“But I do think that regulatory understanding of these
complex trading and derivatives strategies is lagging,” she
added. “If JPMorgan Chase can’t understand the risks they were
taking, how can you expect examiners to do it?”
Last week, Dimon said JPMorgan kept regulators as informed
as possible.
“You should assume that we keep our regulators up to date,”
the CEO said in a conference call with analysts and reporters.
“Sometimes we don’t give them great information because we
didn’t have great information.”
The Fed is examining whether JPMorgan is taking similar
risks elsewhere in the sprawling bank, while the OCC is also
examining the losses, the two agencies said on Monday.
