WASHINGTON — Democratic Sens. Carl Levin and Jeff Merkley on Thursday used the ongoing revelations about trading losses at JPMorgan Chase (JPM) to ratchet up their pressure on regulators for a strong implementation of the Volcker Rule.
In a letter to the nation's top financial regulators, the two senators who authored the Volcker Rule dubbed a regulatory proposal that would allow banks to engage in so-called portfolio hedging the "JPMorgan Loophole."
"To our disappointment, last fall's proposed rule ignored the clear legislative language and clear statement of Congressional intent," Levin and Merkley wrote. "Now, in recent days, we've seen what 'portfolio hedging' might mean."
"This 'JPMorgan Loophole' is big enough to drive a 'London Whale' through," the senators added, referring to the nickname of the trader responsible for the losses.
In a conference call with reporters, Levin said that in the week since the news about JPMorgan Chase broke, he has not spoken with Federal Reserve officials about the Volcker Rule, communicating only by letter.
But Levin said that he has spoken directly with both Comptroller Thomas Curry and Gene Sperling, the top economic official at the White House.
Levin said that in both of those conversations, he advocated for a strong implementation of the Volcker Rule, which bars proprietary trading but allows certain hedging transactions.
Levin argued that it is now clear that the JPMorgan Chase trades, which allowed the firm to take a position on corporate credit derivatives, are not allowable under the clear language of the law.
"You have to identify what the specific trade is, what the specific position is, and you must be reducing risk. Those two things must be present," he said. "So neither of those tests have been met here."
During a Sunday appearance on NBC's "Meet the Press," Levin decried lobbying efforts by Wall Street banks to weaken the Volcker Rule, but he also suggested that the Fed, the Treasury Department and the OCC are to blame for the draft rules.
"Some of the regulators, we believe, including the ones who are regulating the trades, want to actually carry out the laws as written," Levin told NBC's David Gregory. "But some of the folks that regulate the banks and the Treasury are willing to weaken the law."
On Thursday, Levin said that Sperling reached out to him this week and assured him that Treasury officials are not pushing to allow portfolio hedging.
But Levin said that he still wants to know what the Treasury Department's position is, and he pointed again to a sharp difference in views among banking regulators.
"My understanding is that there was a real division of opinion," the Michigan Democrat said.