BankThink

Receiving Wide Coverage ...Controller of the Comptroller? A hard-hitting Times piece Saturday depicts JPMorgan as an institution that runs roughshod over its regulators. Although there are “embedded” examiners (40 from the New York Fed and 70 from the Office of the Comptroller of the Currency) on site at the bank, there were none in the Chief Investment Office’s London or New York locations prior to the unit’s multibillion-dollar trading loss. The bank dismissed regulators’ concerns about the CIO’s risk-taking, kept them in the dark about salient developments like changing the VaR model, and belittled field examiners by going over their heads, according to the story. Jamie Dimon’s charisma, and track record as the CEO who steered JPMorgan through the crisis relatively unscathed, made it harder for supervisors to second-guess management (and Dimon’s seat on the board of the New York Fed couldn’t have made it easier to challenge his bank, although he and the Fed are quoted insisting his role there is strictly as an economic adviser). The article relies heavily on current and former regulators who spoke on condition of anonymity (probably warranted in this case). At the end, there’s an amusing quote from an unnamed OCC official who tries to explain the vagaries of hedging during a meeting with Congressional staff members: “I know in college they teach you everything is black and white. … but it’s not that way in the real world.” Not only does this sound like a line from a Tom Clancy thriller, but it makes you wonder where the speaker went to college, since one of the few things we remember learning from our undergraduate days is that everything is not black and white. In a blog post, William K. Black, an economics professor and former thrift regulator, cites the Times article’s revelations as evidence that “embedded examiners do not work. They get too close to the bank officers and employees. In the regulatory ranks we called this ‘marrying the natives.’” And speaking of Tom Clancy-era flashbacks, Black has a memorable term for what regulators call “systemically important” banks — he refers to them as “systemically dangerous institutions (SDIs),” an acronym that evokes images of satellites shooting laser beams.

The "not-for-charity" leg of the three-legged credit union motto is a bit like the fourth Ghostbuster; there, just not talked about much.

Listed below are five questions about the Federal Financial Institutions Examination Council compliance with the recent guidance.

Reasons why you should up the ante in your stress testing.

There are at least three ways to break a bank. Give him a little more time and Jamie Dimon may demonstrate all three of them.

All would be well advised to confine criticisms and recommendations to mitigating JPMorgan's systemic risk. What remain are decisions that affect stakeholders. The bank's owners have already spoken in favor of their CEO, and rightly so.

If we had a legal entity identifier in place could we have seen the problem building up? The short answer is yes.

Don't let a false impression chill freedom of speech: Misinformation from various sources could cause compliance officers to needlessly prohibit bankers from making perfectly legal campaign contributions, writes Mark Renaud.

Receiving Wide Coverage ...JPMorgan: The bank’s Chief Investment Office has been under the media microscope ever since the first stories emerged about the London Whale’s risky derivative trades last month. Today a front-page Journal story focuses the lens on the Special Investment Group, a team within the CIO that makes equity investments in distressed companies. This would seem an odd activity for a group within the CIO, whose job is ostensibly to manage risk, and the story says Matt Zames, the office’s new chief, is reconsidering whether the SIG belongs there. But later on in the story, there’s a quote from an SIG employee’s LinkedIn page that explains the group “seeks to take controlling stakes in companies J.P. Morgan has lent money to and are experiencing some degree of financial distress." So maybe you could argue that trying to get some upside in a bad situation where JPM is already exposed as a lender is a form of risk management? Though you could also argue it’s potentially throwing good money after bad. In any event, JPMorgan tells the Journal that the SIG doesn’t invest FDIC-insured deposits; the group is funded with debt and equity issued at the holding company level. In the Times, columnist Peter Eavis argues that JPMorgan doesn’t disclose enough about its hedges, value at risk measures, and other things investors would probably want to know right now. Also in the Times, economist Simon Johnson joins others in calling for JPMorgan CEO Jamie Dimon to step down from the board of the New York Fed. Johnson considers both sides of the issue at length, but he feels so strongly that Dimon should resign from the Fed board that he’s drafted an online petition.

Most of us in the banking community are seeking, after the crash, to rebuild trust, shareholder and client loyalty, businesses and lives. As time goes on and memories fade, we should remember the job is not finished.