Has JPMorgan Shot Itself in the Foot on Volcker?

JPMorgan Chase (NYSE:JPM) may have made the biggest case against its own argument with its reported $2 billion trading loss through synthetic credit securities. The bank, which reported on Thursday that its chief investment office had taken bets that were riskier than expected and was facing huge losses, has been lobbying to stop U.S. lawmakers’ attempts of tighter restrictions on proprietary trading.

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JPMorgan and other banks such as Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) have been lobbying for an expansion of exemptions, saying the proposed so-called Volcker rule was too broad and would cause them a loss in business.

However, after Thursday’s disclosure, its position against the rule has automatically been weakened, according to experts. “Their ability to shape the discussion in Washington, D.C., on the Volcker rule might have gotten materially set back,” CreditSights analyst David Hendler told Bloomberg.

“The enormous loss JPMorgan announced … 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,” Senator Carl Levin, a co-author of the Volcker rule, said in a statement. Levin added that that the latest event was a “stark reminder” to regulators to implement the rule that limits bets banks can make with their own funds.

JPMorgan chief executive officer Jamie Dimon denied their arguments had been weakened despite the losses coming from the bank’s own errors. “This does not change analyses, facts, detailed argument,” Dimon said on Thursday on a conference call with analysts. “It is very unfortunate. It plays right into all the hands of a bunch of pundits out there.”

Former Fed chairman Paul Volcker, who first proposed the rule, had said recently that lobbying from banks was resulting in his proposal getting too complicated.

“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” said Representative Barney Frank, who co-wrote the regulatory Dodd-Frank Wall Street Reform and Consumer Protection Act, of which the Volcker rule is a part.

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