It will be easy for senators to score political points Wednesday when JPMorgan Chase CEO Jamie Dimon testifies before the Senate Banking Committee about his bank’s trading loss of $2 billion and counting. It will be much more difficult to hear how regulators could have or should have stopped the bank from those making losing trades.
There has been no shortage of bad banking behavior in the past four years. JPMorgan’s multi-billion-dollar bet on corporate bond derivatives has become a focal point for critics calling for more oversight. More than 100 regulators work inside JPMorgan looking for problems already, and they overlooked the risk. Would more bodies have helped?
If JPMorgan’s positions had turned out to be profitable, odds are the strategy would have been heralded as smart and gutsy, not self-servicing and damaging to the bank’s reputation.
The market where JPMorgan chose to play is one of winners and losers. Risk opens the door to rewards — and losses, too. Since the unprecedented interventions by the government in 2008 and 2009 to stave off a banking collapse, there has been an effort to have big banks act more responsibly, for their own sake and for that of the economy. Thousands of pages of rules have been written in the effort to persuade large banks the government may not come to their rescue next time.
By all accounts, JPMorgan’s bad trade didn’t pose a threat to its depositors and represents a small financial impact for such a large company. If shareholders and customers are concerned about the bad decisions that led to the losses, they will vote with their dollars.