Dimon as New York Fed Director renews conflicts concern

JPMorgan CEO Jamie Dimon JPMorgan CEO Jamie Dimon

May 15 (Bloomberg) -- The $2 billion trading loss at JPMorgan Chase & Co. has revived concern that its regulator, the Federal Reserve Bank of New York, is too cozy with Wall Street.

JPMorgan Chief Executive Officer Jamie Dimon is one of three bankers sitting on the board of the New York Fed, as required by law. While directors play no part in bank supervision, Elizabeth Warren, a Democrat running for U.S. Senate from Massachusetts, called for Dimon’s removal from the district bank board. Senator Bernard Sanders, a Vermont Independent, said he sees a conflict in Dimon’s two roles.

Fed governance came under scrutiny after taxpayer-funded bailouts during the 2008 financial crisis sparked a political backlash. The Dodd-Frank Act overhauling bank supervision required a Government Accountability Office audit of the central bank, which was completed last year and found the Fed needs to strengthen policies governing conflicts of interest and improve transparency.

Having bankers on the boards of regional Fed banks “is a problem, period,” said Sheila Bair, senior adviser at Pew Charitable Trusts and a former chairman of the Federal Deposit Insurance Corp. “Why the regional banks have members of the industry that they regulate on their boards is beyond me.”

Jack Gutt, a spokesman for the New York Fed, declined to comment on Dimon’s role on the board.

The New York Fed is one of 12 regional Fed banks and supervises some of the nation’s largest financial firms, including Goldman Sachs Group Inc. and Citigroup Inc.

Organizational Issues

Fed spokeswoman Barbara Hagenbaugh said the central bank, as JPMorgan’s holding-company supervisor, is studying organizational issues around the trading loss to assure that they aren’t repeated in other areas of the bank. The loss underscores the importance of capital buffers, she said.

The Office of Comptroller of the Currency said yesterday that it is examining JPMorgan’s activities and evaluating its transactions following the $2 billion loss that shook up bank leadership.

The regulator, which oversees national banks including JPMorgan Chase Bank N.A., also is evaluating risk management strategies and practices at other large banks to validate their understanding of risk levels and controls. The OCC said JPMorgan’s losses affect its earnings while not presenting a threat to the safety and soundness of the bank.

JPMorgan shares rose 2.8 percent to $36.78 at 2:41 p.m. in New York trading today, after falling 3.2 percent yesterday and 9.3 percent on May 11, the most in nine months. The KBW Bank Index of 24 financial stocks was down 0.1 percent to 45.15.

Page 1 of 3 >>

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome