Too big to fail, also too big to govern?

NEW YORK | “Errors”, “sloppiness” and “bad judgements”. Whatever. The fact is that JP Morgan’s CEO Jamie Dimon, no matter what he pleads, is the ultimate responsible for the bank’s 2 billion dollars loss through risky trade with its own money.

A big embarrassment that made their stock price plummet around one tenth of their value on Friday session dragging the rest of the banking sector.

Washington, Wall Street and financial media were on fire. It has not been explained how deeply exposed the banking giant is to the troublesome trading positions. Are they too big for the market they are operating in? To what extent was Dimon briefed on the trades? Sources close to the bank quoted by the Wall Street Journal say he was briefed indeed, although he overlooked the potential risks.

It is not yet clear if the trades would have violated the so-called Volcker rule, a provision of the 2010 Dodd-Frank law that will prohibit banks from trading on their own account, set to take effect in July. Jamie Dimon was one of its big detractors. He has been vocal with his view that excessive regulation would make it harder for banks to provide loans and help drive economic growth.

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said Congressman Barney Frank, senior Democrat former chairman of the House Financial Services Committee.

“Because J.P. Morgan didn’t nearly go under during the financial crisis, Dimon has used whatever implied clout that distinction carries as a bully pulpit. He’s railed against regulation. He stood before Ben Bernanke and suggested the Fed chairman might strangle the economy with bank rules,” wrote Marketwatch’s David Weidner.

Dimon insisted that “this doesn’t violate the Volcker rule, but it violates the Dimon principle.” The trading loss “plays right into the hands of a whole bunch of pundits out there,” he said. “We will have to deal with that—that’s life.”

JP Morgan was recently allowed to increase its stock dividend after passing stress tests conducted by the Federal Reserve. Next years’ stress tests might come with much more scrutiny of investment banking activities. Their credibility has been slashed but this brings a bigger uncertainty: if you cannot trust the largest U.S. bank with roughly $2.3 trillion in assets, who can you trust?

About the Author

Ana Fuentes
Columnist for El País and a contributor to SER (Sociedad Española de Radiodifusión), was the first editor-in-chief of The Corner. Currently based in Madrid, she has been a correspondent in New York, Beijing and Paris for several international media outlets such as Prisa Radio, Radio Netherlands or CNN en español. Ana holds a degree in Journalism from the Complutense University in Madrid and the Sorbonne University in Paris, and a Master's in Journalism from Spanish newspaper El País.

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