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The JPM Crackdown: Justified or Political Payback?

Any day now the Environmental Protection Agency will announce it is investigating JPMorgan Chase. It's about the only federal agency that hasn't already taken a swing at the bank.

Is Washington out to get JPMorgan? Or is the giant firm simply making that many more missteps than its competitors?

"I'm not a conspiracy theorist, but I am beginning to see a conspiracy," says one longtime source with no direct connection to JPM. "JPMorgan Chase is a big company and I am sure they make mistakes, but I don't think they've made one every afternoon for the last 365 days."

(To see more posts from Barb Rehm's Blog,click here.)

Clearly JPMorgan has messed up and obviously CEO Jamie Dimon has been less than politic in his comments about financial reform. And he easily could have won some allies by giving into shareholder concerns and relinquishing the chairman title.

But the scrutiny from Washington does have a tinge of political backlash to it. It's almost like you hurt the ones you love most, right?

Dimon was about as "in" with the Obama administration as a banker could get. But his repeated, public criticism of the Dodd-Frank Act created a rift, and the "London Whale" episode in spring 2012 cemented the divide.

No longer was Jamie Dimon a friend of PresidentObama or the Democratic Party. While that shouldn't matter, it looks like it does.

As the Washington Post put it recently: "Almost every corner of JPMorgan's business is under scrutiny from state, federal and international authorities."

The Financial Times noted that JPM's list of legal issues is five times as long 10 pages as it was five years ago.

JPM's second-quarter disclosures tell investors about more than three dozen separate investigations or lawsuits, including six by the Justice Department alone.

Some of this scrutiny is justified. How JPM marketed mortgage-backed securities and how it's collecting overdue debts seem like fair game to me. But going after the bank for hiring the children of Chinese officials? That smacks of bureaucrats reaching to make a point.

And the government throwing each book at JPM seems to be the embodiment of Eric Holder's about-face on big banks.

In March, the attorney general said the largest banks are too big to jail. About the only thing surprising about that statement was how long it took him to walk it back. This month Holder did an about-face and promised to announce new prosecutions of bankers by yearend.

"My message is, anybody who's inflicted damage on our financial markets should not be of the belief that they are out of the woods because of the passage of time. If any individual or if any institution is banking on waiting things out, they have to think again," Holder told The Wall Street Journal.

Don't hold your breath; Holder is expected to step down as AG in the next few months.

But talk like that does embolden regulators, and the federal government looks poised to press JPMorgan until its board takes some decisive action like selling off big chunks of business or forcing Dimon out.

If regulators have concluded that the largest banks are "too big to manage" and by this point that seems pretty obvious to me then let's confront that head-on. Finish the Dodd-Frank rules that will give the biggest banks an incentive to get smaller and simpler. Identify the riskiest products and practices and crack down on them.

But let's not target a bank and drag it down piece by piece. That can't be good for the system, much less the public's faith in banking or our economy's recovery.


(8) Comments



Comments (8)
No one should think that the Federal Government and the Federal Reserve are not also culpable for the miscues that caused the financial crisis. Who investigates and prosecutes them? Instead, we name the Financial Reform Act after Dodd & Frank; that's akin to naming the Bank Security Act after Willie Sutton.
Posted by kappa1973 | Friday, October 25 2013 at 9:17AM ET
It is poetic justice that JP Morgan is finally paying for its sins. The OCC, however, is partly to blame because it looked the other way for years and years when it came across acts of wrongdoing by JP Morgan. I never saw any real analysis done by the OCC with respect to JP Morgan when I headed up the large bank program at the FDIC.
Nor would the OCC ever share their large bank internal memos and large bank management system with us. It is shame that the OCC leadership were never called on the carpet for its lack of cooperation.

It was not only the OTS which pushed the FDIC away with respect to WaMu. The OCC did it too with its large national banks. This is the elephant in the room that top regulators at the FDIC and Federal Reserve would like to ignore.

I should know. I headed up the FDIC's large bank program for a number of years. Check out for more evidence of this.
Posted by Dwihas3 | Monday, September 02 2013 at 10:48PM ET
If JP Morgan is too large to manage, how does the government do by comparison; or even the Department of Justice?
Posted by richplace | Tuesday, August 27 2013 at 6:48PM ET
If JP Morgan is too large to manage, how does the government do by comparison; or even the Department of Justice?
Posted by richplace | Tuesday, August 27 2013 at 6:48PM ET
Through serial violations of laws and regulations, JPMC has worked hard to earn the current level of attention from regulators and enforcement authorities in several countries. The sheer number of infractions amassed in just a few years, in such a variety of industries including municipal securities, electric power markets, and metals warehousing, in addition to virtually every aspect of financial services, makes it difficult to attribute the actions to chance. It seems unfair to diminish this singular yet dubious accomplishment by considering the legal crackdown as politically-motivated.
Posted by jim_wells | Tuesday, August 27 2013 at 4:31PM ET
Whether this is vindictive or not, it will be understood as that in the industry, and among other financial firms. And the message will be received not just by large firms. Community bankers are already gun shy about disagreeing with examiners, even when the examiner is just plain wrong. Is it good to be afraid of openly disagreeing with your government?
Posted by WayneAbernathy | Tuesday, August 27 2013 at 3:13PM ET
This isn't a conspiracy. The fact is that JP Morgan and dozens of other Wall Street mega-banks have gamed the system, bet against their customers and in fact their own products in some cases, they've manipulated energy markets, LIBOR and the list goes on and on.

Yet, not one single one of these institutions is under an enforcement order. none have been shut down. None of their directors have been sued and hit with Civil Money Penalties. But guess who has? That's right the Too Small To Save crowd, otherwise known as community banks. Because community banks have a simple business model (taking in local deposits and making local loans - novel I know) the regulators can actually get their arms around these banks. As a result hundred have been shut down, and many boards sued over regulatory infractions that pale in contrast to the transgressions of the big banks.

So are these banks Too Big to manage? Sure they are. But is clear that they remain Too Big To Fail and Too Big To Jail, and that is an affront to every hardworking taxpayer in this country. If my community bank had a leverage ratio even near JP Morgan's I would be put out of business by the regulatory community.

It is time for the community banks to stop paying for the sins of Wall Street. It is time for Wall Street to be held to standards that reflect their risk. Time to end TBTF/TBTJ. It is time for a very clear two tiered regulatory system that has regulations that reflect the complexity of business model and the risk to the global economy.

So no, this isn't a political issue. This is the start of long overdue attention being placed in the appropriate area. TBTF/TBTJ.
Posted by grsb | Tuesday, August 27 2013 at 2:53PM ET
Add political retribution to the list of systemic risks!
Posted by kvillani | Tuesday, August 27 2013 at 2:42PM ET
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