Tags: Regulator | Banks | chumps

Regulator: Banks Treat Us Like We Are All 'Chumps'

Sunday, 13 May 2012 11:18 AM

JPMorgan Chase's $2 billion hedging loss is a reminder banks need to stop treating everyone else like "chumps" and that it's time for tough regulations to be fully implemented, says Bart Chilton, commissioner for the U.S. Commodity Futures Trading Commission.

On Thursday, news broke a unit at JPMorgan Chase, which enjoys a reputation for being a tightly-run ship, lost $2 billion in a hedging trade.

"While that won't trigger a repeat of 2008, it certainly highlights what we already know, painfully well: reckless speculation and poor risk management by large, interconnected financial institutions can spark financial calamities," Chilton writes in a CNBC OpEd.

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

"These circumstances take on a fantasy-world quality in that many of us continue to believe the bankers are so scary smart about our markets and economy. What it really demonstrates is what chumps we sometimes have become."

Congress has passed tough new regulations for the country's financial markets, many under the auspices of the Dodd-Frank law, but not all of them have been rolled out.

"Regulators have a little better visual on what is going on. Could markets and our economy suffer significantly before all these rules are in place? Regrettably, yes. The answer is for regulators to put the hammer down and do what Congress and the President instructed us to do when Dodd-Frank became the law of the land."

On such regulation is the Volcker Rule, which prevents banks from trading with their own money.

JPMorgan technically may not have violated the Volcker Rule, which is not yet enforced, as the incident happened as part of a risk-management operation and was not a proprietary trade for outright financial gain.

"What does this say about the long-term effectiveness of the Volcker Rule? For all we know, these JPMorgan trades could have been in compliance with the hedging exemption," says Jeff Berman, a partner at Clifford Chance in New York, according to Reuters.

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

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Sunday, 13 May 2012 11:18 AM
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