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.

JPMorgan Potpourri: The Journal reported over the weekend that the board at JPMorgan Chase plans to shake up its risk committee in the wake of the London Whale debacle. The Sunday Times profiled Boaz Weinstein, one of the hedge fund managers who have profited from taking the other side of the Whale’s losing bets. In an op-ed in the FT, business professor Pablo Triana says JPM’s stumble may spell doom for VaR models, a welcome development to him. Another FT story argues that the U.K. Independent Commission on Banking’s proposal to “ringfence” retail banking from investment banking could have the unintended consequence of giving rise to CIO-like operations. The banks would have to invest excess deposits that were “trapped” in the retail business and loopholes might allow them to use derivatives, the writer reasons. And speaking of the U.K., former prime minister Tony Blair was testifying in a judicial inquiry on Rupert Murdoch’s media empire yesterday when an antiwar protestor burst into the room and screamed that “Blair had been paid $6 million a year by JPMorgan Chase for allowing $20 billion to be looted from Iraq’s central bank.” Blair “said he had ‘never had a discussion’ with JPMorgan officials about Iraq, but he did not mention his earnings from the bank, which British newspapers have reported guarantees him about $3 million a year,” according to the Times. Finally, unrelated to London or the Whale, Japan’s securities regulator is probing JPM for possibly leaking insider information related to an IPO it underwrote for a sheet glass manufacturer, the Journal reports, citing an anonymous source.

Washington Post

A growing number of student loan borrowers are dropping out of college, leaving them with debt burdens they’re likelier to default on.


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