Friday, May 11, 2012

Leading Member of Senate Banking Committee Calls for Hearings on JP Morgan Trading Losses

Senator Bob Corker (R-TN), a key member of the Banking Committee, has called for expeditious hearings into the events surrounding the JPMorgan Chase & Co. trading losses. In a letter to Committee Chairman Tim Johnson (D-SD), he asked that the committee examine if the trades in questions were bona fide hedging transactions or poorly managed proprietary trades. More broadly, Senator Corker said that the hearings should consider if US taxpayers are fully protected from losses at major financial institutions.  Senator Corker is the Ranking Member on the Financial Institutions Subcommittee.

Senator Corker noted his belief in vibrant capital markets for debt and equity securities and the need for balance in ensuring that the US financial system  can meet the needs of a 21st century economy. That said, the losses posted by JP Morgan were clearly significant, he noted, and policy makers must understand in detail what transpired.

Separately, Senator Carl Levin (D-MI), co-author with Senator Jeff Merkley (D-OR),  of the Volcker Rule provisions of the Dodd-Frank Act said that the enormous loss JP Morgan suffered is the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too big to fail' banks have no business making. The loss is a stark reminder of the need for regulators to establish tough, effective standards to implement the Volcker Rule to protect taxpayers from having to cover such high-risk bets.

In separate  remarks, Senator Merkley said that the JP Morgan situation dramatically demonstrates why the SEC and the banking agencies must adopt regulations prohibiting hedge fund investments by large financial institutions to be disguised as risk mitigation or market making. The federal financial regulators must implement without delay a Volcker Rule as intended by Congress, he emphasized, with a clear and effective firewall between what the Senator called ``hedge fund-like trading’’ and traditional banking.