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Should JPMorgan Chase have an extra chance?



By Pam Martens and Russ Martens: June 28, 2019 ~

  Jamie Dimon, Chairman and CEO, JPMorgan Chase

Jamie Dimon, Chairman and CEO, JPMorgan Chase

How Many Other Opportunities criminal recurring few? JPMorgan Chase has logged guilty guilty into three criminal felony counts over the past five years; It has a criminally charged precious metal trader singing to the Feds for the time that JPMorgan admits in government records that it is under a new criminal investigation for that matter. The bank has paid $ 36 billion in fines for injustice since the financial crisis, including $ 1

billion in exotic derivatives trading in London with bank deposits and lost at least $ 6.2 billion of these deposits (the London Whale scandal). And over the past year it has been shown that there are "games on" for more promising fines and illegal profits. (See Could JPMorgan Chase be hit with a fourth Felony Count for Rigging Precious Metals Markets?)

Despite all this, the Federal Reserve announced yesterday that it had given JPMorgan Chase another chance to pass the regulator's stress test. [19659005] According to the Fed's announcement, all 18 megabanks it adds to stress testing have passed the second leg of stress tests, known as Comprehensive Capital Analysis and Review (CCAR). It requires a bank, Credit Suisse, "to address certain limited weaknesses in the capital planning processes."

But JPMorgan Chase, along with the much smaller and zero-felony-counting Capital One, could only pass the stress test because the Fed allowed them to submit the plan again. (It's like failing your Wall Street license exam that you have months to prepare for and then being allowed to take an open text exam.) The Fed said this about the case:

"In the severe negative scenario, Capital One The Financial Corporation (Capital One) and JPMorgan Chase & Co. (JPMorgan) were estimated to have at least a minimum equity ratio lower than the minimum regulatory capital requirements based on the original planned capital stock, Capital One falling below the minimum required for shares in shares 1 , 1 capital and total capital ratio on a retrospective basis, JPMorgan fell below the minimum required for stock 1, 1 level stocks, and the additional utilization rate of a reclaim base … However, both Capital One and JPMorgan were able to maintain their adjustments after adjusting the capital injection above the minimum requirements in the severely unfavorable scenario after submitting adjusted capital italics. "

The word" influence "is used twice in that paragraph, and in both cases it applies to JPMorgan Chase. For what can the Fed refer to? According to the latest report by the OCC, JPMorgan held on March 31, 2019 $ 59 trillion in fictitious (face-to-face) derivatives that are netted to $ 348 billion of credit exposure from derivatives against $ 201.5 billion of risk capital, giving the bank a total credit exposure of 173 percent of the capital stock. (See table 4 in the appendix to the OCC report here.)

But only the capital risk is public and regulators know. According to excellent reporting by Emily Flitter in the New York Times in July last year, "A decade after a financial crisis has been part of a linked web of derivatives, regulators still have an incomplete picture of who owns what is in it The global derivative market of $ 600 trillion is due to the fact that the megabanks do not need to disclose to US regulators their holdings of derivatives located in certain offshore units.

A spokesman for JPMorgan Chase told Flitter that the amount of derivatives did not report to his US regulator "account for less than 10 percent of all bank derivatives. "Ten percent of $ 59 trillion is $ 5.9 trillion, not exactly chump change, and if these are high-risk credit derivatives that inflated a lot of Wall Street in 2008, it's not a lesser material.

Hiding problematic issues is Not far from JPMorgan Chase, when the US Senate Investigation Subcommittee published its 300-page report on the London Whale Loss, it revealed: As of January 16, 2012, JPMorgan held Chase & # 39; s main investment office, which is in the federally insured commercial bank, $ 458 billion (notional) in domestic and foreign credit default swap indices, of which $ 115 billion was in an index consisting of companies with a credit facility quality assessment, which the insured bank was not allowed to own to meet security and solvency requirements.

To escape their unwanted bond issue, JPMorgan "transferred the market risk to See the positions of a subsidiary of an Edge Act Corporation, which took most of the losses. "An Edge Act Corporation refers to the ability of a bank to acquire a special Federal Reserve charter. By establishing an Edge Act company, US banks may engage in investments that are not available under standard bank laws.

Be Careful with which federal regulator it was that gave JPMorgan Chase this loophole to climb through. It was the Federal Reserve, the same body that just gave the bank a second run to pass its stress test.

We knew that this year's Federal Reserve stress test results would be a big illusion wrapped in an expensive promotional campaign early March when the Fed went through a rule change without the usual 30-day delay.The rule changed removed the so-called "qualitative" goal as a tool to flunk a bank on its stress test. sent to recurring banks like JPMorgan Chase is that you do not have to worry about any gutsy bank researcher who makes you flunk your stress test f or to sign up for things that do not report and / or control money laundering, insider trading, bribery or market rigging, because we just dump the qualitative way of running your bank.

The following news about the rule change, Dennis Kelleher, CEO of nonprofit watchdog, Better Markets, issued this statement:

"The Fed seems to be a double standard of transparency that favors the largest banks over public and market discipline. On the one hand, the Fed will provide these banks with substantially more information on the stress tests. On the other hand, the Fed will no longer publish its qualitative assessment of these banks to the public.

"Both changes are unwise and will impair the ability of the public and the market to fully and just consider the state of the nation's largest banks or the quality and robustness of Fed's tests.

Related Articles :

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Having looked after stress tests, Wall Street Banks spend as a drunken sailor – on their own stock purchases

Fed & # 39; s Powell says financial risks are "moderate"; these charts do not agree

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