Did JP Morgan Violate the Volcker Rule?

http://www.forbes.com/sites/leesheppard/2012/06/04/did-jp-morgan-violate-the-volcker-rule-2/

Would JP Morgan’s in-house trading be exempt from the Volcker rule? Probably not. It was too dangerous, and it is hard to see how it qualifies for even the proposed rule’s very loose concept of hedging.

JP Morgan Chase’s $2 billion mark-to-market trading loss is a gift to those of us who want to preserve and strengthen the Volcker rule.

One estimate is that the loss may eventually reach $7 billion. Traders on the other side are taking potshots as the bank tries to unwind its positions gradually. JP Morgan has cancelled a $15 billion share buyback. (The Independent, May 22, 2012.)

The New York Times says that Ina Drew, head of JP Morgan’s chief investment office, lost control of her unit’s powerful, London-based traders. ( The New York Times, May 20, 2012, p. A1.)

What’s wrong with this picture? JP Morgan is a federally insured, regulated commercial bank. A story about traders who scare their own bosses and whose activities account for a big chunk of income is acceptable at a hedge fund or even an investment bank. A trading operation where the traders are so powerful has no place in a federally insured, regulated commercial bank.

Timmy Geithner suggested that Jamie Dimon should resign from the board of the New York Fed. He said that Dimon had a decision to make, and that regulators should be perceived to be above political influence. There are three investigations going in the United States and one in the United Kingdom.

Where were the regulators? They were examining the London unit only sporadically, having been told there was nothing to see here. Embedded examiners who asked pointed questions were overruled. (The New York Times, May 27, 2012.) And shouldn’t someone have asked why ostensibly conservative treasury operations were located in freewheeling London?