海角大神

Over the past year, JPMorgan Chase鈥檚 chairman, Jamie Dimon, became a poster child for arguing that America鈥檚 big banks should not be hobbled by regulation.

He and his executives have written Congress and federal regulators, opposing tough standards that would bar the banks from trading for their own account (that is, betting their own money). Such restrictions, they say, would be a 鈥渟hock to the US financial system.鈥�

Now, by announcing an unexpected $2 billion trading loss, Mr. Dimon has given his critics new ammunition 鈥� that the banks actually need more supervision, not less.

鈥淭he loss smoothes the path for those who wish to seriously limit the trading operations of banks and makes it more difficult for others to raise the myriad objections, many of them quite valid, about the specific proposals,鈥� said Doug Elliott, a fellow at the Brookings Institution in Washington and a former employee at JPMorgan, in a written analysis.

One of the critics of the banks is Sen. Carl Levin (D) of Michigan, who was the co-author of the legislation establishing the so-called Volcker rule 鈥� that banks should not trade for their account if they are considered 鈥渢oo big to fail.鈥� In a statement Thursday, Senator Levin argued that the regulators should establish 鈥渢ough, effective standards to implement鈥� the legislation, which is being phased in.

Another high-profile bank critic, John Makin of the American Enterprise Institute in Washington, argued in a statement Friday that the 鈥淛P Morgan fiasco demonstrates the ineffectiveness of Dodd-Frank [banking reform legislation] as a viable guardian of financial stability.鈥�

He wants the rules tightened and the Volcker rule implemented. Under the legislation, the Volcker rule does not need to be implemented until July 16, 2013.

But even if the Volcker rule were implemented, Mr. Elliott says, JPMorgan may not have been prohibited from making the trades.

鈥淛PMorgan has indicated that these activities were 鈥榟edges,鈥� meaning they were undertaken to reduce the total risk of the bank,鈥� writes Elliott. 鈥淲e want the banks to hedge and all the proposals are careful to try to allow banks to continue their hedging activities.鈥�

In hedging, financial corporations employ strategies to mitigate their risk. According to news reports, JPMorgan lost money when the economy softened last month and the corporate bonds that the bank held moved against the firm. As Elliott observes, 鈥淭hese particular hedges were poorly executed and went spectacularly wrong.鈥�

Dimon, in a conference call with securities analysts on Thursday, said much the same. 鈥淛ust because we鈥檙e stupid doesn鈥檛 mean everyone else was,鈥� he said.

Even if JPMorgan was stupid, it鈥檚 important to put the mistake in context, Elliott says. Yes, $2 billion is a large number. But, he points out, it represents less than 10 percent of the bank鈥檚 pretax earnings last year, one-hundredth of the $189 billion value of the company, and one-thousandth of its $2.3 trillion in assets.

The bank has indicated the $2 billion loss will cost it 25 cents a share. For the quarter, it anticipates reporting about $4 billion in pretax earnings, after the loss.

However, some financial experts say, how well banks are capitalized is hard to know because financial derivatives are accounted for off their balance sheets. Under the Dodd-Frank legislation, trading in sophisticated financial instruments is supposed to go through clearinghouses, which will make them more transparent. But that is just beginning.

鈥淵ou have to be a forensic sleuth in order to know what鈥檚 going on,鈥� says Mayra Rodr铆guez Valladares, managing principal and financial trainer at MRV Associates, a financial consulting firm in New York. 鈥淵ou can鈥檛 just download the latest financial report and see what鈥檚 going on with financial derivatives.鈥�

In JPMorgan鈥檚 case, she says, it appears they were betting the economy would get better faster. But, she adds, 鈥淚t is not clear what their strategy was.鈥�