Lawmaker calls on USA to ban Dimon’s trades
US REGULATORS must design new rules in order to make it impossible for banks like JP Morgan to suffer huge losses of the kind revealed last week, according to one of the architects of America’s flagship financial reform law.
Barney Frank, who co-authored the Dodd-Frank financial reform act, told ABC yesterday: “I hope that the final rule will prevent this… The Volcker Rule is still being formulated.”
The Volcker rule, named after former Federal Reserve chairman Paul Volcker, will prevent large banks from making big bets with their own capital or surplus deposits. But the details of the rule – including how it will distinguish investing from hedging – are still being drawn up by US agencies.
JP Morgan chief executive Jamie Dimon has been the most outspoken critic of the new law, famously saying that Volcker “does not understand capital markets”.
But he admitted yesterday that the bank’s “sloppy” risk management had given ammunition to his critics.
The bank revealed last week that it lost $2bn in a failed hedging strategy, which was said to involve issuing so many credit default swaps on an index of US companies that it started to distort the market and could not find enough buyers to unwind the position.
Dimon said the bets are not yet fully unwound and the losses “could be volatile by a billion dollars”. But he said that getting out of the trades too quickly could worsen the situation.