Tags: JPMorgan | Tough | Regulation | volcker

JPMorgan Fiasco Renews Calls for Tougher Regulation

Friday, 11 May 2012 08:20 AM

A $2 billion trading loss at JPMorgan Chase has rekindled calls for more regulations, with Democrats and champions for regulation screaming "I told you so."

The loss, likely the result of proprietary trading, in which a bank uses its own money in capital markets and not that of its clients, violates the proposed Volcker Rule, which would ban such transactions.

"The enormous loss JPMorgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making," says Senator Carl Levin, a Michigan Democrat, according to the New York times.

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"Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards."

The Volcker Rule has yet to be rolled out, although legal experts says JPMorgan's loss couldn't have come at a worse time.

"This is a crucial moment in the debate," says Frank Partnoy, a professor of law and finance at the University of San Diego and longtime champion for tighter rules for the country's banks, the New York Times adds.

"It couldn’t have come at a worse time for JPMorgan Chase. After everything we went through in the financial crisis, the fact that something of this magnitude could happen shows that the reform didn’t do the job."

JPMorgan Chase CEO Jamie Dimon, who went into immediate damage control and admitted the bank was guilty of "errors," "sloppiness" and "bad judgment," told reporters he was expecting calls for tougher regulations.

"It's very unfortunate ... it plays right into the hands of pundits out there, but that's life," Dimon says, according to CNNMoney.

"It didn't violate the Volcker rule; it violated the Dimon principle."

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

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