10:53 AM
Connect Directly

U.S. Regulator Looking at JPMorgan Clawbacks

U.S. bank regulators will review whether JPMorgan Chase & Co executives should have to give back compensation due to the bank's failed hedging strategy that has produced at least $2 billion in losses, the head of the Office of the Comptroller of the Currency said.


Wednesday's hearing will provide lawmakers with their first chance to quiz the regulators responsible for monitoring JPMorgan, the largest U.S. bank by assets, since the losses were announced.

Regulators have come under scrutiny for not raising red flags earlier about the massive hedging strategy that went awry, despite having more than 100 examiners embedded at JPMorgan.

The OCC regulates JPMorgan's banking activities, while the Federal Reserve Bank of New York is the primary regulator of JPMorgan's holding company.

Curry is due to testify alongside Fed Governor Daniel Tarullo, Federal Deposit Insurance Corp acting Chairman Martin Gruenberg, Deputy Treasury Secretary Neal Wolin, and Consumer Financial Protection Bureau Director Richard Cordray.

Dimon is scheduled to appear before the committee next week.

In his prepared testimony, Curry said the value of the JPMorgan position "deteriorated rapidly" at the end of April and during the first days of May, after OCC examiners began to evaluate the trades and strategy at the bank.

In late 2011 and early 2012, JPMorgan revised its strategy to reduce the amount of protection it had against credit losses in a stressed global economy, Curry said.

But the instruments the bank chose to make the move were different from those that had been used originally and the change introduced new risks, he said. The new threats included higher liquidity risk, which means the bank might not be able to easily change the positions.

Curry said that since that time, the OCC has been meeting daily with JPMorgan managers to re-evaluate the bank's risk management and what actions JPMorgan should take to reduce the risk of the positions at issue.

Tarullo, in his prepared testimony, said the Fed is also paying close attention to the steps the bank is taking to "de-risk" the portfolio.

OCC examiners have not found activity at other large banks similar to the scale or complexity of JPMorgan's trading activity, Curry said.

Lawmakers are expected to press regulators on how the trading debacle will impact the final version of the so-called Volcker rule, which is expected to be released in the coming months.

The Volcker rule prohibits banks that enjoy government backstops like deposit insurance or access to Fed loans from trading with their own funds for profit.

The trading crackdown, which was included in the 2010 Dodd-Frank financial oversight law, does provide an exemption for trades made to hedge risk.

Supporters of the restrictions are pressuring regulators to tighten the exemption, arguing the JPMorgan losses are evidence that a draft rule released in October would provide too much leeway.

Curry said the OCC has not drawn any conclusions about whether the JPMorgan trades would have fallen under the Volcker rule. (Reporting by Dave Clarke and Alexandra Alper in Washington and David Henry in New York; Editing by Gary Hill and Tim Dobbyn)

Copyright 2012 by Reuters. All rights reserved.

2 of 2
Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
Register for Bank Systems & Technology Newsletters
White Papers
Current Issue
Bank Systems & Technology
BS&T's 2014 Elite 8 executives are leading their banks to success, whether it involves leveraging the cloud, modernizing core systems, or transforming into digital enterprises.
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.