JP Morgan Chase CEO Jamie Dimon this week announced that the bank he heads lost $2 billion making risky trade under the guise of “hedging” (which is meant to reduce risk). Dimon has been one of the biggest critics of the Volcker Rule, which is meant to prevent banks from making massive bets with federally insured dollars.
Dimon appeared today on NBC’s Meet the Press, where he was asked by host David Gregory if JP Morgan’s massive loss shows that the banking system — just a few years after a financial crisis that nearly brought the global economy to its knees — is still too risky. Dimon replied, “I don’t think so”:
GREGORY: Have you given regulators new ammunition against the banks?
DIMON: Absolutely, this is a very unfortunate and inopportune time to have had this.
GREGORY: But if the best of the best can’t manage a risk like this, does it not tell you that the banking system is still several years after the financial collapse, too risky?
DIMON: I don’t think so. It’s a question of size. This is not a risk that is life threatening to JP Morgan.
Of course, the point isn’t whether JP Morgan, the biggest bank in the U.S., can survive a trade like this. It’s whether the financial system can sustain this sort of trading by all of the big banks, many of which are not in the same financial shape as JP Morgan.
As the New York Times detailed yesterday, JP Morgan and the rest of the nation’s biggest banks have been fighting to widen exemptions to the Volcker Rule that would allow banks to continue making risky trades of this sort. ”I hope that the final [Volcker] rule will prevent this,” said Rep. Barney Frank (D-MA), whose name graces the Dodd-Frank financial reform bill, on ABC today. “The Volcker Rule is still being formulated.”