While you are making appeal for action taken for bank
like JPMorgan Chase, President Obama had started to use
this appearance to press for tighter regulation of Wall Street. He
even made this statement although JPMorgan is one of his finanical
backers: “JPMorgan is one of the best-managed banks there is,” he
said. “Jamie Dimon, the head of it, is one of the smartest bankers
we got, and they still lost US$2 billion and counting.”
The US Justice Department meanwhile had opened an inquiry
into JPMorgan ‘s multibillion-dollar trading loss.
And you might like to read the news report below on why there
might be an "conflict of interest" when government try to
"regulate" Wall Street or banks :
Banks trend fine line in
trading
New York: When JPMorgan Chase revealed its US$2 billion (S$2.5
billion) trading loss last week, it looked as through the big Wall
Street banks were up to their old tricks, using their
government-backed funds to make risky trades in a misguided effort
to improve their profits.
But even banks that focus mainly on good, old-fashioned
lending do their fair share of high-stakes trading.
While few other banks, if any, pursue the complex
strategies that led to JPMorgan’s losses, many traditional lenders
regularly buy and sell securities, and make bet with derivatives,
as part of their core operations. Financial firms say such
activities allow them to earn a basic return on the deposits they
collect and to offset balance sheet risks.
These practices are creating a headache for regulators
who are trying to devise new rules to prevent another financial
crisis.
Regulators are finalising the so-called Volcker Rule,
which would ban banks from making speculative bets with their own
money. But they face a basic problem: What is proprietary
trading?
Such activities are easy to sopt when financial firms run
independent trading units devoted to making profits. But regulators
find it harder to tell when other activities – like market-making
and portfolio hedging – cross the line. So far, regulators do not
seem too concerned that the JPMorgan blowup will have broader
ramifications on the banking system. The Financial Stability
Oversight Council, the panel set up in the wake of the crisis to
identify and respond to threats to the banking sectors, is not
planning a special meeting to discuss JPMorgan, said a source.
Big banks, even those with little presence on Wall
Street, contend that their trading activities are part of prudent
risk-management. Without the ability to invest in bonds and other
securities, companies argue that they would not be able to make
loans or extend credit as easily.
While large part of the available-for-sale bonds is in
instruments deemed safe, like Treasurys, the securities can produce
big trading gains, especially if their purchases are
well-timed.
JPMorgan said its US$2billion loss stemmed from a hedge
related to its available-for-sales securities. Specifically, the
bank was using a relatively new type of credit derivative that
mostly trades off exchange in opaque markets.
After the JPMorgan losses, some analysts say banks could
deliver more nasty surprises as they build up big positions in
bonds and derivatives, especially if the economy remains weak and
interest rates do not behave as banks expect.
“The biggest issue for the next five years in banking is
how banks manage their balance sheets in such unprecedented times,”
said analyst Mike Mayo.
New York Times
prime,news, The Straits Times,Tuesday, May 15, 2012, Pg
A14