(Bloomberg News) U.S. lawmakers and interest groups favoring tighter restrictions on proprietary trading said JPMorgan Chase & Co.'s $2 billion loss on synthetic credit securities bolsters their case.
Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations and co-author of the so-called Volcker rule, said the New York-based bank's disclosure is a "stark reminder" to regulators drafting the proprietary-trading ban required by the Dodd-Frank Act.
"The enormous loss JPMorgan announced today is just the latest evidence that what banks call 'hedges' are often risky bets that so-called 'too-big-to-fail' banks have no business making," Levin, a Michigan Democrat, said in a statement released yesterday.
The Federal Reserve, Securities and Exchange Commission and Federal Deposit Insurance Corp. are among regulators drafting the Volcker rule to limit bets banks can make with their own funds. JPMorgan, with other Wall Street banks including Goldman Sachs Group Inc. and Morgan Stanley, have lobbied regulators to expand exemptions included in a draft proposal released last year.
"Their ability to shape the discussion in Washington, D.C., on the Volcker rule might have gotten materially set back," David Hendler, an analyst at CreditSights Inc., said in an interview.
Levin and Senator Jeff Merkley, the Oregon Democrat who co- wrote the provision, have used meetings and a comment letter to press regulators to tighten restrictions in the final rule, first proposed by former Fed Chairman Paul Volcker.
Asked about the JPMorgan disclosure, Julie Edwards, Merkley's spokeswoman, said the loss "speaks for itself."
Representative Barney Frank, the Massachusetts Democrat who co-wrote the regulatory law that bears his name, said the loss "obviously goes counter to the bank's narrative blaming excessive regulation for the woes of financial institutions."
The Volcker rule is intended to keep banks from putting federally insured deposits at risk. Wall Street firms have said the proposed rule is so broad and ill-defined that it will force them to shed businesses and increase risks for clients.