The announcement that JPMorgan Chase lost $2 billion in hedge fund trading last week will mean renewed focus on financial regulations on Capitol Hill, but it probably won’t result in any new laws about banking business, top financial regulation lawyers in Washington said Monday.
The JPMorgan news let Democrats open fire: Several senators reacted to the JPMorgan news with tough talk on Sunday morning talk shows, while White House Press Secretary Jay Carney told reporters that “this event only reinforces why it was so important to pass Wall Street reform.”
That's because the trading disaster that JPMorgan has so far described is a prime example for why the Dodd–Frank Wall Street Reform and Consumer Protection Act was important when passed in 2010, attorneys say.
Ronald Glancz, chair of the financial services group at Venable in Washington, is among several lawyers who say Congress will almost certainly hold hearings about this to find out if other banks are engaging in similar behavior. “Congress is going to want to know what happened and whether it is systemic,” Glancz said.
But he also said the national debate about banking regulation laws is over for now. “I don’t think Congress wants to revisit that, and especially in an election year,” Glancz said.
J. David Carlin, a D.C.-based partner of the public law and policy group at Akin Gump Strauss Hauer & Feld, agrees that there will be congressional hearings, and maybe even legislation that can get through a committee. But what happened at JPMorgan is not simple enough to move the political needle past the reforms enacted in Dodd-Frank, he said.
The event will add importance to the regulatory rules that are supposed to come out this year, which have already been at the center of a high-profile, two-year battle about how Dodd-Frank will be implemented. That includes the so-called Volcker Rule, which generally bans banking institutions from investing in private equity or hedge funds or engaging in proprietary trading.
The White House, through Carney, directly connected the JPMorgan losses to that rule, which has been the target of a lobbying campaign to weaken it when it regulators eventually implement it.
“Ever since it’s passed, there’s been millions and millions of dollars spent by Wall Street lobbyists to try to water down, delay and render ineffective the rules that need to be put into place,” Carney said. “And I think that this event merely reinforces why the President was right to take on this fight and why we still need to make sure it’s implemented.”
Elizabeth Warren, a U.S. Senate candidate from Massachusetts who led oversight efforts during the financial crisis while she served in the Obama administration, said Americans are frustrated that Wall Street has not been held accountable and does not consider itself responsible.
"We need to stop the cycle of bankers taking on risky activities, getting bailed out by the public, then using their army of lobbyists to water down regulations," Warren said in a statement. "We need a tough cop on the beat so that no one steals your purse on Main Street or your pension on Wall Street."
The Securities and Exchange Commission is conducting an investigation into the series of transactions that led to JPMorgan’s loss, Carney said.
Sen. Carl Levin (D-Mich.), who co-wrote language included in the Dodd-Frank law that aims to protect taxpayers from having to cover high-risk investment bets from banks, called JPMorgan’s losses a “stark reminder of the need for regulators to establish tough, effective standards” this year.
"The enormous loss JP Morgan 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 said in a statement.
Sen. Diane Feinstein (D-Calif.), went on Fox News Sunday and said that the rules to implement Dodd-Frank need to be in place, but stopped short of saying any legislation was necessary.
“This is a big surprise because this particular bank is well-respected. It is well-led,” Feinstein said on the show. “And so, to have this kind of a loss from hedging activities is a big surprise. I think what it points out that there are no rules of the road for hedging and for derivatives. And this needs to happen.
“The bill provides for it, but it hasn't taken place. And now you have what I would consider an enormous loss in a very high profile, very good investment bank,” Feinstein said. “So, it's a real danger signal that these rules need to get set by the respective bodies, the SEC, and the consumer finance commission.”