JPMorgan faced failure in risk controls, regulators say

June 6 (Bloomberg) -- JPMorgan Chase & Co.’s trading loss of more than $2 billion points to failures in the bank’s risk- management practices, U.S. regulators told lawmakers today.

Comptroller of the Currency Thomas J. Curry said the losses raise “questions about the adequacy and rigor” of the bank’s risk operation, particularly of the unit which experienced the losses, the chief investment office.

“We believe that the issue at JPMorgan Chase is one of inadequate risk management within the office of the chief investment office,” Curry told lawmakers. The agency is looking to see if “similar gaps exist in any other area of JPMorgan’s risk management architecture,” he said.

The hearing before the Senate Banking Committee was the first public airing of the roles played by the OCC, the Federal Reserve, the Federal Deposit Insurance Corp. and the Treasury Department before May 10, when JPMorgan Chairman and Chief Executive Officer Jamie Dimon disclosed the trading losses tied to credit derivatives.

“We are looking at whether there were gaps within our assessment of the risks and the risk controls in place in the CIO office,” Curry told lawmakers.

Senator Tim Johnson, the South Dakota Democrat who leads the committee, said losses at the largest and most profitable U.S. bank shows that “no institution is immune from bad judgment.”

Dimon Testimony

Dimon, who is scheduled to testify to the Senate panel on June 13 and to the House Financial Services Committee on June 19, is under pressure from lawmakers and regulators to explain the trades, which he has called “flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Jennifer Zuccarelli, a spokeswoman for JPMorgan, declined to comment on the remarks of regulators.

Senator Richard Shelby of Alabama, the top Republican on the committee, said after the hearing that Curry’s testimony, which came as the OCC was still conducting its review of the losses, didn’t answer all of his questions.

“Maybe Mr. Dimon will explain what’s going on,” Shelby told reporters. “Sooner or later we need an explanation. Was it managing risk or was it something else?”

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