May 18 (Bloomberg) -- Republicans in the U.S. Congress were uniting behind a call to repeal all or part of the 2010 financial regulatory overhaul. Since JPMorgan Chase & Co. announced its $2 billion trading loss earlier this month, that front has splintered.
Some are seeking investigations, with Senator Mike Crapo of Idaho among those calling on JPMorgan Chairman and Chief Executive Officer Jamie Dimon to testify, which he has agreed to do. Senator Richard Shelby of Alabama, the Banking Committee’s top Republican, said the loss emphasizes the need for capital standards for banks tougher than what the overhaul requires. Senator Lamar Alexander of Tennessee says Congress has no business getting involved.
The divisions point to a party torn by instincts to fix problems as significant as the losses suffered by one of the nation’s biggest banks, by a Tea Party-backed faction that seeks to avoid any prospect of future bailouts, and by presumptive Republican nominee Mitt Romney’s stance that one bank’s loss was another investor’s gain.
“We need to get over the idea that every time a bank fails or has a problem that Washington’s job is to bail it out or fix it,” Alexander said.
Suspicious of Banks
Congressional Republicans may not be able to resolve their differences on this issue, said Michael Franc, vice president of government relations at the Heritage Foundation, a Washington-based research group that favors small government. While most Republican lawmakers oppose strict regulation, more are becoming as suspicious of big banks as they are of big government, he said.
“One of the dynamics that’s emerged in the Republican Party over the last decade or so is a growing populist feel,” he said.
As Republican lawmakers split over their response to the JPMorgan loss, Democrats are unified on their message: That the trading loss underscores the need for tougher regulation of banks.
“It’s one of those things that’s clear that they were betting like you would do at the craps table in Las Vegas and they bet the wrong way,” Senate Majority Leader Harry Reid, a Nevada Democrat, said of the company’s loss this week. “That’s fine if they did it with their own money, but the problem is, the way Wall Street’s been working, is that heads they win, tails we lose.”
Senators Carl Levin of Michigan and Jeff Merkley of Oregon, the two Democrats who drafted the ban on proprietary trading included in the Dodd-Frank Act, are increasing pressure on regulators to tighten the so-called Volcker rule, which they say has a “JPMorgan loophole.”
“Last fall’s proposed rule ignored the clear legislative language and clear statement of congressional intent and allowed for so-called ‘portfolio hedging,’” the lawmakers wrote in a letter yesterday to the five federal regulators drafting the rule. “Now, in recent days, we’ve seen exactly what ‘portfolio hedging’ might mean.”
JPMorgan Chairman Dimon, who disclosed the loss May 10, told shareholders there was no justification for the “egregious mistakes” by the biggest and most profitable U.S. bank. In two lawsuits filed this week in Manhattan federal court, shareholders sued the bank and Dimon over the loss. He agreed yesterday to testify before the Senate Banking Committee as it concludes hearings on regulatory changes in June.