Were Regulators CLUELESS About JPMorgan’s Losses?

The Senate Banking Committee on Wednesday grilled the Office of the Comptroller of the Currency (OCC) in a hearing on the massive JPMorgan (NYSE:JPM) trading loss, finding the agency had been clueless about it only a few weeks before the loss was publicly exposed — this, despite the OCC having 65 full-time representatives across various JP Morgan offices.

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Newly appointed OCC chief Thomas Curry was in the hot seat as Senators demanded explanations for what looks like a serious lapse: “The OCC has a well-deserved reputation for being too cozy with the banks it regulates,” said Sen. Robert Menendez (D-N.J.). “Did the OCC screw up in allowing these JPMorgan trades to happen?”

Curry said he was trying to determine the answer to that question. He also stated that the OCC was in the midst of assessing the bank’s overall risk management and not just the London office trades that caused the huge loss.

Curry also said, “Part of my goal in reviewing what happened at JPMorgan Chase is not just to see what the bank itself did or did wrong, but also how we can improve our supervisory processes at the OCC,” referring to a “critical self-review” under way at the agency.

The findings of the committee would have a significant bearing on its oversight of 2010 financial reform law that was intended to curb speculative and risky trades by financial institutions, and the implementation of the controversial Volcker Rule that disallows banks from trading on their own account.

JPMorgan chief Jamie Dimon will face the committee next week and the House Financial Services Committee the week after. “It’s a very complicated investment strategy, both in terms of its size and complexity,” Curry said of the JPMorgan trades that generated the loss. “We are looking to determine what the actual strategy behind that investment scheme was and also if there were any other factors driving that strategy other than attempting to mitigate known risks in that portfolio.”

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