Guest Post: The JPMorgan Problem Writ Large

Tyler Durden's picture

Authored by Howard Davies, originally posted at Project Syndicate,

JPMorgan Chase has had a bad year. Not only has the bank just reported its first quarterly loss in more than a decade; it has also agreed to a tentative deal to pay $4 billion to settle claims that it misled the government-sponsored mortgage agencies Fannie Mae and Freddie Mac about the quality of billions of dollars of low-grade mortgages that it sold to them. Other big legal and regulatory costs loom. JPMorgan will bounce back, of course, but its travails have reopened the debate about what to do with banks that are “too big to fail.”

In the United States, policymakers chose to include the Volcker rule (named after former Federal Reserve Chairman Paul Volcker) in the Dodd-Frank Act, thereby restricting proprietary trading by commercial banks rather than reviving some form of the Glass-Steagall Act’s division of investment and retail banks. But Senators Elizabeth Warren and John McCain, a powerful duo, have returned to the fight. They argue that recent events have shown that JPMorgan is too big to be managed well, even by CEO Jamie Dimon, whose fiercest critics do not accuse him of incompetence.

Nonetheless, the Warren-McCain bill is unlikely to be enacted soon, if only because President Barack Obama’s administration is preoccupied with keeping the government open and paying its bills, while bipartisan agreement on what day of the week it is, let alone on further financial reform, cannot be guaranteed. But the question of what to do about huge, complex, and seemingly hard-to-control universal banks that benefit from implicit state support remains unresolved.

The “school solution,” agreed at the Financial Stability Board in Basel, is that global regulators should clearly identify systemically significant banks and impose tougher regulations on them, with more intensive supervision and higher capital ratios. That has been done.

Initially, 29 such banks were designated, together with a few insurers – none of which like the company that they are obliged to keep! There is a procedure for promotion and relegation, like in national football leagues, so the number fluctuates periodically. Banks on the list must keep higher reserves, and maintain more liquidity, reflecting their status as systemically important institutions. They must also prepare what are colloquially known as “living wills,” which explain how they would be wound down in a crisis – ideally without taxpayer support.

But, while all major countries are signed up to this approach, many of them think that more is needed. The US now has its Volcker rule (though disputes between banks and regulators about just how to define it continue). Elsewhere, more intrusive rules are being implemented, or are under consideration.

In the United Kingdom, the government created the Vickers Commission to recommend a solution. Its members proposed that universal banks be obliged to set up ring-fenced retail-banking subsidiaries with a much higher share of equity capital. Only the retail subsidiaries would be permitted to rely on the central bank for lender-of-last-resort support.

A version of the Vickers Commission’s recommendations, which is somewhat more flexible than its members proposed, is in a banking bill currently before Parliament. A number of MPs want to impose tighter restrictions, and it is difficult to find anyone who will speak up for the banks, so some form of the bill is likely to pass, and big British banks will have to divide their operations and their capital.

The UK has decided to take action before any Europe-wide solution is agreed. We British are still members of the European Union (at least for the time being), but sometimes our politicians forget that. Sometimes they simply lose patience with the difficulty of agreeing on changes in negotiations that involve 28 countries, which seems especially true of financial reform, given that many of these countries are not home to systemically important banks and probably never will be.

But EU institutions have not been entirely inactive. The European Commission asked an eminent-persons group, chaired by Erkki Liikanen, the head of the Finnish central bank, to examine this issue on a European scale.

The group’s report, published in October 2012, came to a similar conclusion as the Vickers Commission concerning the danger of brigading retail and investment banking activities in the same legal entity, and recommended separating the two. The proposal mirrors the UK plan – the investment-banking and trading arms, not the retail side, would be ring-fenced – but the end point would be quite similar.

But the European Banking Federation has dug in its heels, describing the recommendations as “completely unnecessary.” The European Commission asked for comments, and its formal position is that it is considering them along with the reports.

That consideration may take some time; indeed, it may never end. Germany’s government seems to have little appetite for breaking up Deutsche Bank, and the French have taken a leaf from the British book and implemented their own reform. The French plan looks more like a Gallic version of the Volcker rule than Vickers “à la française.” It is far less rigorous than the banks feared, given President François Hollande’s fiery rhetoric in his electoral campaign last year, in which he anathematized the financial sector as the true “enemy.”

So we now have a global plan, of sorts, supplemented by various home-grown solutions in the US, the UK, and France, with the possibility of a European plan that would also differ from the others. In testimony to the UK Parliament, Volcker gently observed that “Internationalizing some of the basic regulations [would make] a level playing field. It is obviously not ideal that the US has the Volcker rule and [the UK has] Vickers…”

He was surely right, but “too big to fail” is another area in which the initial post-crisis enthusiasm for global solutions has failed. The unfortunate result is an uneven playing field, with incentives for banks to relocate operations, whether geographically or in terms of legal entities. That is not the outcome that the G-20 – or anyone else – sought back in 2009.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
steveo77's picture

Impeach all traitors to the USA, to our basic law, The Constitution.     Jail the past presidents who have been complicit in subverting the Constitution.       Its not just those in power now who deserve to be caught Holdering the bag

Quick list of subversion of the Bill of Rights here....takes 45 seconds, it will open your eyes.

Pinto Currency's picture


As the price of silver went from $28 at the end of Q1 2013 to $18 at the end of Q2, JPM's derivative book went from 685 M oz of silver to 946 M oz of silver (about 1.5x global annual mine production).  The JPM problem is that they own the regulators and is greater than Vickers vs Volcker.

See Table 9:

Bay of Pigs's picture

FREE Bart Shillton!

Oh wait...

knukles's picture

Well, has anyone looked in Schrödinger's grave to see if he's in there?

nope-1004's picture

JPig is dead without the gov't printing dollars out of thin air to keep it afloat.  Kind of obvious.  The talk about taper was/is/will be 100% bullshit.

This vid shows the hubris and double standard that white-collar criminals are allowed to have.


Careless Whisper's picture

So the fake Native American has teamed up with a member of the Keating Five, and those two are going to straighten out one of the most powerful banks, one that hasn't seen a politician it can't control, or a derivative trade it didn't like.  Oh okay.

Pure Evil's picture

That's just their way of soliciting campaign contributions.

We all know those two are easier to buy off than a hooker on a Saturday night.

Muddy1's picture

"Not only has the bank just reported its first quarterly loss in more than a decade"

but wait, I thought this was a TBTF bank, they were broke and going broker by the second, we had to bail them out or martial law would put tanks in the streets, oh, bailout followed by large bonuses.

Imminent Crucible's picture

The problem lies somewhere else, namely here: "JPM just reported its first quarterly loss in more than a decade".  Well, isn't that interesting? How is it that JPM did not report a quarterly loss in 2008, when they actually failed and took more than $450 BILLION in loans from the Fed just to stave off total collapse? (And that's merely the total of TAF, PDCF and CPIFF loans.)

JPM, like the other SIFI's, is not held to any standards of accounting, integrity or plain old good faith dealing.  There are NO RULES that bind JPM and the rest of the pirates when it comes to making money, whether by lying, stealing, securities fraud, you name it. Until this changes, America continues to circle the bowl.  And it won't change until the system collapses. The Fed, the Congress and the Prezdet have assured us of that.

Marc Faber said it best: "There really are no safe havens left."

Deathrips's picture

Can we expect anything less from the worst pay perview in history?



Fuck em all.


Take a look at this. I cant verify it...but its seeming more and more plausible.

Someone just sent me looking.

The Bankers Manifesto of 1892


Disclaimer- I do not endorse or deny the following. I just read it. :)



jaap's picture

F.U. Jamie and Blythe

max2205's picture

Stock is doing great 5 year don't care

Xibalba's picture

You know where would make a good bank...The Post Office.  Just boring old fashioned banking, no fuckery, no oversize and undeserved bonuses, no market manipulation...just be a fucking bank. 

Running On Bingo Fuel's picture

One time several years back we had a claim against our mailman that he stole a package that was suppose to be delivered. It didn't go anywhere until a few neighbors stepped forward with the same claim.

Fuck the whole concept of banking!

Make your own coins. It's easy. Melt down a little of your gold or silver and pour it into your coin mold. Kids can do it FCS. If you cheat your name in the community is mud. Easy.

Imminent Crucible's picture

Yes, and screw that half-witted rubbish about "a level playing field".  Volcker is spouting nonsense.  Who, in the bankster industry, wants a level playing field? 

Me: "Mr. Volcker, the banksters don't want a level playing field.  Whoever has the field tilted to his advantage is willing to lie, steal and kill to keep it that way.  They have no intention of leveling the playing field and losing their advantage. So why are you here, talking all this nonsense?"

Volcker: "Well, because in about 45 minutes they're going to put up a fantastic buffet.  Good bubbly, too."

Running On Bingo Fuel's picture

Yea why not. When Devario said "The truth is drowning in the gravy" he was talking about the intricacies of managing relationships not what many thought at the time, it's time for dinner....

Fluffy pancakes are better than flat pancakes.

tvdog's picture

We have that. They're called credit unions.

tuku2400's picture

To big to Jail!

Emergency Ward's picture

"Oh Jamie
Talkin bout Jamie

He sticks it to me when times are sad

'No bullshit' about his London Whale bad
Oh Jamie
Talkin bout Jamie
Yeah talkin bout Jamie

That's my Bankster"

Encroaching Darkness's picture

As usual, the mindset involved in creating a problem is inadequate to solving it.

You cannot have anything "too big to fail"; you cannot guarantee continuity when the whole damn system is about to collapse.

Either you wind the organization down in an orderly way, in reasonably quick time, or it fails, catastrophically, when it reaches its limits.

Sort of like the difference between a turnaround-and-inspection of an FCC unit in an oil refinery, or an explosion-and-fire when the slide valves break.

I lost a few friends back in the Eighties when the unit I had been working on did that. I had left it just the year before, and those were good people.

But then, we'll all be saying that soon, if TBTF doesn't become an extinct acronym soon enough.

knukles's picture

It's all a lie.

The "banks" can indeed spin off/sell their investment banking operations.
End of Conversation.
Otherwise all them ("Jump you fuckers") investment bankers are inherently worthless and deserve to be fired, dismissed from the business which means on the dole as investment banking prepares on for Nothing Else in Life....

The "banks" can be broken up with respect to concentration. 
They can spin off/sell parts of their operations on regional/product, etc. lines

The only reason that They Cannot Be Broken Up is that They're Not TBTF, but Pay Way Too much in Campaign Contributions.

Yen Cross's picture

  Knuks, that was a fantastic comment. I hope Mrs. Knuks reads it.

 (photographic memory)

bozzy's picture

Cant we take what they got and give it to banks that will do some banking?

The whole thing has been gamed so these POS now own all the rents. Stop the fractional reserve ponzi, stop giving them "dry powder" to trade with - offering us a measly 0.5% in return if we are lucky. In equity those who have supplied the dry powder should share porportionately  in the returns. Perhaps with a small insurance fee so as not to share in any crazy Ivan stuff Beluga losses.

ebworthen's picture

The end-run is nationalization of the banks, but campaign contributions and under the table cash and diamonds will prevent that for a very, very long time.

Current situation is that .gov has been "banktionalized" (government is owned by the banks).

Reaper's picture

Everything in Washington has a price. The bigger you are, the smaller the percentage cost of pay to play. That also extends to the courts in the second circuit. The US attorney for the Southern District of NY(Manhattan)is Schumer's former personal lawyer boy, Bharara. Schumer solicits for other Senators' campaign troughs. McCain and Warren want media face time, and the more their efforts fail, the more face time they receive. Schumer also personally approved the nomination of all second circuit judges since 1998, including Sotomayor.

Seasmoke's picture

Enemies Foreign AND Domestic !!!!

tpgaynor's picture

Volker rule was step 1. putting volker in charge of the fed for life step 2.  when he dies, abolish the fed then put the post office in charge.

philipat's picture

Glass-Steagall worked perfectly well until Enron coluded with Wall Street and Summers etc. to pay off Congress for its cancelation. Why is GS classified as a "Retail Bank" for any reason other than to access free money? Is JPM really interested in Retail Banking?

Especially with the prospect of Global Bank "Bail-ins", it is up to the depositer to assess the strength of a bank. So, please, can we HAVE Banks again, separated from the casinos which should NOT be public Companies using OPM, but privete LLP's using their partners funds to enter into high risk transactions. Can I also please have the ability to read and understand the published financial statements of the new simple banks, so with Mark-to-market asset valuations, GAAP accounting standards, no Off-balance sheet SIV's etc.

Thanks. But I'm not holding my breath.

One And Only's picture

The problem with banks and society at large is that many people are stuck in the day dream that we have a free society and capitalism. The truth is we are far removed from both.

We live in a society that is somewhere between fascism and communism. Let's explore some simple truths:

- The government IS spying on journalists.

- The government IS spying on all citizens.

- The government IS using it's heavy hand through agencies like the IRS against parties or groups it doesn't agree with or groups that oppose it. Even parties that pose zero national threat; tea party, conservatives, etc.

- Big corporations like Google, Apple, AOL, Yahoo, MSFT, etc ARE cooperating with the government in these spy efforts. These same cooperation, for all intents and purposes, pay little to no tax. So big business is in bed with government. This is a defining pillar of fascism.

- The banks are also sharing information with the government. While the banks are getting "punished" they are also benefiting from FREE MONEY provided by a very POLITICAL Federal Reserve. If Obama directs JPM to originate home loans for low income, unqualified minorities guess what? JPM is going to do it. It's happening as we speak.

- We have learned via Edward Snowden that we no longer have free speech. If the government is exposed for outrageously infringing on our most sacred liberties than the best course of action is moving to....Russia. Free speech? I don't think so.

- As shown with Syria the President was a CUNT HAIR away from taking unilateral military action against a nation that posed NO threat to our national security. Only congress has the right to declare war, and war has not been declared by congress since WWII.

- An unbelievable amount of citizens are reliant on welfare - a pseudo utopian characteristic that is generally only witnessed in communist societies.

- Capital Controls are finding their way into our society as ZH professed with that JPM letter stating that international transfers are persona non grata.

Nothing really about our society is free any longer. Sure I am "free" to right this comment but it is being stored in some government server somewhere where it can later be used against me as we move towards a far more tyrannical regime. What other purpose does it serve to save it to begin with?

I could opine and stand on this soap box far longer but the proof is in the pudding. Please just take an objective view of the world we live in and don't blame our problems on "free markets" "capitalism". Truth be told we haven't had the privilege of freedom, capitalism, or free markets in quite some time.

“Well, Doctor, what have we got—a Republic or a Monarchy?”

 “A Republic, if you can keep it.”

- Ben Franklin

And sure enough it only took a couple hundred years to completely dissolve. We clearly couldn't keep it for long.

El Vaquero's picture

"And sure enough it only took a couple hundred years to completely dissolve. We clearly couldn't keep it for long."


I think that Thomas Jefferson understood that people who desire power over others would eventually ignore the principals of liberty and of a constitutional republic.  Hence the 2nd Amendment and his quote that had something to do with the tree of liberty, patriots, tyrants and blood. 

One And Only's picture

If anything like Thomas Jefferson spoke of were to originate from any US citizen that citizen would be labeled a terrorist and sent to some military prison in some other country (or on a military ship) and that would be the end of him. At the least audited by the IRS or some other 3 letter agency and penalized into submission.

Thomas Jefferson was an amazing politician, philosopher, and visionary. His ideas have largely been lost amongst most Americans as keeping up with the Kardashians and food stamps has them largely consumed.

Sad thing is, most Americans will never know how amazing our society once was, and most will never know the true potential of what it could have been.

We have all been led to slaughter...willingly.

El Vaquero's picture

There will be an awakening, and it will be very, very painful.  A majority will not understand what is going on, but they will understand that their realities have been shattered, and we will all have very hard choices to make when that happens.  For most, I suspect that it will be like perpetually waking up in a strange and dark room, not knowing where they are or even what day it is. 

One And Only's picture

The thing is tyranny creeps in slowly. Think boiling frog effect.

Take for example the guy who authored the Patriot Act. He had good intentions but now he is a chief opponent speaking out against it's misuse. As a result he is probably on a CIA watch list and being spied on under the auspices of the legislation he wrote!

It's a slow and steady creep almost unobservable but to those who take the time to pay attention. All of these government officials who are currently supporting these tyrannical policies will one day find themselves on the other end of a very painful whipping stick.

The unfortunate thing about all of this is that it is very hard to reverse, in some instances impossible, without a very violent revolution/civil war. Much suffering ahead unfortunately, led firstly by inflation.

El Vaquero's picture

Yes.  Each step looks reasonable when only the previous step is considered.  Our current government is like Scientology.  You start off by reading Dianetics and going to a couple  of seminars.  Then after years of incrementally being presented with ever more grandiose smoke and mirrors, you are a devoted penniless slave who believes that the ghosts of space aliens are the source of all of our ills. 

Nick Jihad's picture

No. Tyranny advances takes a giant leap forward when women gain political power, because women _like_ tyranny. That's why the income tax, alcolhol prohibition and women's suffrage were all enacted in a four-year span from 1916 to 1920. Totalitarian systems tend to see men as a threat, and so relegates them to the role of tax donkey or cannon fodder. But women easily accept totalitarian systems, because they are happy to trade economic security for political aquiescence, and they will raise the next generation to venerate the state.

Spumoni's picture

Your comment, Senor Jihad, ranks first among the most ridiculous things I have read this month. If you knew the first thing about matriarchal societies (which the world had plenty of, say around two thousand years ago), you would realize that it was the introduction of male lawyers and priests which began the long slide towards crony capitalism. Prior to that, men were oppressed only by their need to visit the "temple virgins" in order to get an "oracle." Since then, the priests have made do with small boys and whips. The lawyers keep them in the streets, and the rest of us still go to church in the mistaken belief that some benevolent god is going to rescue the faithful from the fruits of their labors.

A Prudent Man would first abolish lawyers and priests. He would then enlist a multi-sexual (read:men, women and cats) commission to rewrite the Constitution so that bankers had no access to either, but were forced to live with their consciences free of absolution by the buggerers. THEN we could begin to progress towards a truly , ahem, enlightened civilization.

El Vaquero's picture

"They must also prepare what are colloquially known as “living wills,” which explain how they would be wound down in a crisis – ideally without taxpayer support."


Right.  Then why don't they make banks remove all of their derivatives from their FDIC insured deposit taking subsidiaries again?  If those go kaboom, the taxpayers are on the hook. 

NidStyles's picture

No, you know who has had a bad year? The rest of the world that are not bankers... Fuck the banks.

A Lunatic's picture

Even a new 'level playing field' will be more level for some than others............

max2205's picture

just in DOJ settles with JPM for 12 billion...ouch?

Make that 13 large

TrustWho's picture

Dimon to Bernanke......HELP, bro! Bro needs some cash.

NDXTrader's picture

And all of these fines add up to what Bernanke hands over to them for essentially worthless paper every 6 weeks or so. What a joke

B2u's picture

Why does JP Morgan need the government to break them up....they could break the bank into different businesses NOW...

JLee2027's picture

It's over. When the squid (Goldman) and JP Morgan cannot make a profit with a rigged market, captured regulators, corrupt government support, free money from the FED, phony accounting procedures, and a gang of thieves running things, then the economy is collapsing.

css1971's picture

4 billion? Only 4 billion? Didn't they just get something like eleventy trillion for free from the government?

bozzy's picture

My word this is cozy - Morgan spreads them for the DOJ, on limited admission of culpability. Not hearing anything about metals? Anyone esle going to be paid - Like the poor sods who got screwed? No, I thiought not. Morgan screws the world, pays America regulators.

Fuck Morgan and fuck the arrogant posemonkeys in the US administration. I hope they all die badly.