The Federal Reserve Bank of New York botched oversight of the JPMorgan Chase & Co. office that suffered $6.2 billion in trading losses attributed to the so- called London Whale, a watchdog report showed.
The report from the Fed board's Office of the Inspector General said the New York Fed spotted risks in JPMorgan's chief investment office and planned examinations in 2008, 2009 and 2010, while mishandling execution of those reviews and inter- agency coordination. It calls the failure a "missed opportunity."
The New York Fed "did not conduct the planned or recommended examinations because the Reserve Bank reassessed the prioritization of the initially planned activities related to the CIO due to many supervisory demands," the report released today in Washington said, without being more specific as to what those demands were.
Also, there was "a lack of supervisory resources" and "weaknesses existed in controls surrounding the supervisory planning process," the report said. The New York Fed also failed to coordinate with the Office of the Comptroller of the Currency, which regulated JPMorgan's banking unit.
A reorganization of the Fed's supervisory team in 2011 also resulted in "significant loss of institutional knowledge regarding" JPMorgan's chief investment office, the report said.
"The board should enhance its supervisory processes as a result of lessons learned," the report stated.
JPMorgan Chase, the largest U.S. financial holding company with $2.5 trillion in total assets, lost at least $6.2 billion in 2012 on a large bet on synthetic credit derivatives.
JPMorgan spokesman Joe Evangelisti declined to comment on the report.
The Fed OIG said it was only able to issue a four-page summary of its findings because its full report contains "confidential" supervisory findings.
By comparison, the Senate's permanent subcommittee on investigations issued a 300-page report on the losses on March 15, saying the trades provided "a startling and instructive case history of how synthetic credit derivatives have become a multi-billion dollar source of risk within the U.S. banking system."
The Senate report also said "inadequate regulatory oversight was too easily dodged or stonewalled."
