The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns

Tyler Durden's picture

Submitted by Pam Martens and Russ Martens via,

Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system.

A rational observer of Wall Street’s serial hubris might have expected some key segments of this letter to make it into the business press. A mere eight years ago the United States experienced a complete meltdown of its financial system, leading to the worst economic collapse since the Great Depression. President Obama and regulators have been assuring us over these intervening eight years that things are under control as a result of the Dodd-Frank financial reform legislation. But according to the letter the Fed and FDIC issued on April 12 to JPMorgan Chase, the country’s largest bank with over $2 trillion in assets and $51 trillion in notional amounts of derivatives, things are decidedly not under control.

At the top of page 11, the Federal regulators reveal that they have “identified a deficiency” in JPMorgan’s wind-down plan which if not properly addressed could “pose serious adverse effects to the financial stability of the United States.” Why didn’t JPMorgan’s Board of Directors or its legions of lawyers catch this?

It’s important to parse the phrasing of that sentence. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”

That statement should strike fear into even the likes of presidential candidate Hillary Clinton who has been tilting at the shadows in shadow banks while buying into the Paul Krugman nonsense that “Dodd-Frank Financial Reform Is Working” when it comes to the behemoth banks on Wall Street.

How could one bank, even one as big and global as JPMorgan Chase, bring down the whole financial stability of the United States? Because, as the U.S. Treasury’s Office of Financial Research (OFR) has explained in detail and plotted in pictures (see below), five big banks in the U.S. have high contagion risk to each other. Which bank poses the highest contagion risk? JPMorgan Chase.

The OFR study was authored by Meraj Allahrakha, Paul Glasserman, and H. Peyton Young, who found the following:

“…the default of a bank with a higher connectivity index would have a greater impact on the rest of the banking system because its shortfall would spill over onto other financial institutions, creating a cascade that could lead to further defaults. High leverage, measured as the ratio of total assets to Tier 1 capital, tends to be associated with high financial connectivity and many of the largest institutions are high on both dimensions…The larger the bank, the greater the potential spillover if it defaults; the higher its leverage, the more prone it is to default under stress; and the greater its connectivity index, the greater is the share of the default that cascades onto the banking system. The product of these three factors provides an overall measure of the contagion risk that the bank poses for the financial system.”

The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis. The two regulators released background documents yesterday as part of flunking the wind-down plans (living wills) of five major Wall Street banks. (In addition to JPMorgan Chase, plans were rejected at Wells Fargo, Bank of America, State Street and Bank of New York Mellon.) One paragraph in the Resolution Plan Assessment Framework and Firm Determinations (2016) used the word “liquidity” 11 times:

“Firms must be able to reliably estimate and meet their liquidity needs prior to, and in, resolution. In this regard, firms must be able to track and measure their liquidity sources and uses at all material entities under normal and stressed conditions. They must also conduct liquidity stress tests that appropriately capture the effect of stresses and impediments to the movement of funds. Holding liquidity in a manner that allows the firm to quickly respond to demands from stakeholders and counterparties, including regulatory authorities in other jurisdictions and financial market utilities, is critical to the execution of the plan. Maintaining sufficient and appropriately positioned liquidity also allows the subsidiaries to continue to operate while the firm is being resolved. In assessing the firms’ plans with regard to liquidity, the agencies evaluated whether the companies were able to appropriately forecast the size and location of liquidity needed to execute their resolution plans and whether those forecasts were incorporated into the firms’ day-to-day liquidity decision making processes. The agencies also reviewed the current size and positioning of the firms’ liquidity resources to assess their adequacy relative to the estimated liquidity needed in resolution under the firm’s scenario and strategy. Further, the agencies evaluated whether the firms had linked their process for determining when to file for bankruptcy to the estimate of liquidity needed to execute their preferred resolution strategy.”

Apparently, the Federal regulators believe JPMorgan Chase has a problem with the “location,” “size and positioning” of its liquidity under its current plan. The April 12 letter to JPMorgan Chase addressed that issue as follows:

“JPMC does not have an appropriate model and process for estimating and maintaining sufficient liquidity at, or readily available to, material entities in resolution…JPMC’s liquidity profile is vulnerable to adverse actions by third parties.”

The regulators expressed the further view that JPMorgan was placing too much “reliance on funds in foreign entities that may be subject to defensive ring-fencing during a time of financial stress.” The use of the term “ring-fencing” suggests that the regulators fear that foreign jurisdictions might lay claim to the liquidity to protect their own financial counterparty interests or investors.

JPMorgan’s sprawling derivatives portfolio that encompasses $51 trillion notional amount as of December 31, 2015 is also causing angst at the Fed and FDIC. The regulators wanted more granular detail on what would happen if JPMorgan’s counterparties refused to continue doing business with it if rating agencies cut its credit ratings. The regulators asked for a “narrative describing at least one pathway” for winding down the derivatives portfolio, taking into account a number of factors, including “the costs and challenges of obtaining timely consents from counterparties and potential acquirers (step-in banks).” The regulators wanted to see the “losses and liquidity required to support the active wind-down” of the derivatives portfolio “incorporated into estimates of the firm’s resolution capital and liquidity execution needs.” 

According to the Office of the Comptroller of the Currency’s (OCC) derivatives report as of December 31, 2015, JPMorgan Chase is only centrally clearing 37 percent of its derivatives while a whopping 63 percent of its derivatives remain in over-the-counter contracts between itself and unnamed counterparties. The Dodd-Frank reform legislation had promised the public that derivatives would all become exchange traded or centrally cleared. Indeed, on March 7 President Obama falsely stated at a press conference that when it comes to derivatives “you have clearinghouses that account for the vast majority of trades taking place.”

But the OCC has now released four separate reports for each quarter of 2015 showing just the opposite of what the President told the press and the public on March 7. In its most recent report the OCC, the regulator of national banks, states that “In the fourth quarter of 2015, 36.9 percent of the derivatives market was centrally cleared.”

Equally disturbing, the most dangerous area of derivatives, the credit derivatives that blew up AIG and necessitated a $185 billion taxpayer bailout, remain predominately over the counter. According to the latest OCC report, only 16.8 percent of credit derivatives are being centrally cleared. At JPMorgan Chase, more than 80 percent of its credit derivatives are still over-the-counter.


Wall Street Mega Banks Are Highly Interconnected: Stock Symbols Are as Follows: C=Citigroup; MS=Morgan Stanley; JPM=JPMorgan Chase; GS=Goldman Sachs; BAC=Bank of America; WFC=Wells Fargo.

Wall Street Mega Banks Are Highly Interconnected: Stock Symbols Are as Follows: C=Citigroup; MS=Morgan Stanley; JPM=JPMorgan Chase; GS=Goldman Sachs; BAC=Bank of America; WFC=Wells Fargo.


Three of the five largest U.S. banks (JPMorgan Chase, Bank of America and Wells Fargo) have now had their wind-down plans rejected by the Federal agency insuring bank deposits (FDIC) and the Federal agency (Federal Reserve) that secretly sluiced $13 trillion in rollover loans to the insolvent or teetering banks in the last epic crisis that continues to cripple the country’s economic growth prospects. Maybe it’s time for the major newspapers of this country to start accurately reporting on the scale of today’s banking problem.

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williambanzai7's picture

Who do you work for US AID, the CIA, the NSA, Robots for Growth or George Soros?

NoVa's picture

Don't be Silly, WB - ALL OF THE ABOVE!


Mr. Universe's picture

Don't forget the charts and data. You have to manufacture lots of those to ram home your point, as impotent as it might be.

bobsmith5's picture

MDB is a  socialist communist and all of those organizations were created by and for the central bankers to help them manage all socialist forms of government, both fascist and communist.  Remember central banking is the 5th plank of the communist manifesto which MDB completely embraces.

Don't for get to cast your down vote for MDB and call him an idiot. He needs both.  He thrives on your hatred and contempt and you must not deprive MDB of that.  It is the whole reason he comments on Zero Hedge. It's practically his life.

Ward no. 6's picture

i wouldn't go so far as to say it is his life...

zeropain's picture

more like small time hedgefund caught being late to the parity trade.  ultra looser, trying to act smart and cynical. 

PavlovPup's picture

He is a timeless fixture of whimsy, like an old bulldog that does nothing but sleep fart eat and g;runt endearingly.One day Tyler will have to post "We put MDB down today it wasn't fair to keep him on that way. Besides he started shitting on the carpet."

wanderer9641's picture

Need a box that says "All of the above"  - working on a contract basis leaves little room for proper socialization. MDB just jumps out of the closet long enough to comment.

Countrybunkererd's picture

You want to restrict the salaries of these people as stated in a separate post.  How does an entity attract talent, in your own words "the creme de la creme of economic geniuses in charge. Economics is extremely complex, and economic planning is even more complex than that. This is a job for modern day academic superheroes, not your average economist." types of people if you limit their incomes?  They will always go to the highest bidder even if that is outside of the United States.  Your plan will attract the idiots you see all over the .gov who gave up because it was too hard and settled for a "safe space" paid by the taxpayers.

Would you take a capped salary of 250K a year when you could make 50 Million elsewhere without the hassle of "Bernie and kind"? 

hardcleareye's picture

OMG!!!  Did you forget to but the words <sarc> at the end??

"Central planning works.."  but the question is: For whom do the central planners work for???

posishinuvignurinse's picture

So, what's your take on all this? You seem hell bent on saving "the economy" and any and all banks that have become too big too fail.

My take? You advocate turning me, and my son, and the rest of the 99% or whatever, into perpetual debt serfs. Becasue that's what saving them means. You get that?

Academic superheroes. I know you are supposedly some sort of sarcasm bot, but please.

Understand that I don't care about blood in the streets, seen it. I don't care about the economy, I can take care of me and mine, and maybe even a few more. Mostly, I don't care about you. I don't hate you, maybe pity, because you are clearly in no position for any sort of disaster. But that's life. I've been plenty of places during, or immediatly after a natural, or man made disaster. People pick up, they move on, they live, some of them.

No one needs to save, or empower, or pay for, or identify and fucking collate anything.

It can all just happen, and then after a time, be in the past.

Show me your "economic wizard". I will beat him to death in the street  like I would make a sandwich. See how that fits into central planning.

Luckhasit's picture


"Show me your "economic wizard". I will beat him to death in the street  like I would make a sandwich. See how that fits into central planning."

that right just put the whole crew on someone's wAtch list! if i had a quote to sum up this situation and where its heading, its right there.

bobsmith5's picture

Central Banking is a pure socialist construct.   It was invented by the rich and powerful so that we could become slaves to them without our awareness and understanding.  Its a from of fraud and theft by stealth.  Managing economies, IS managing slaves and slavery, and MDB who is an elitist and a socialist with total contempt for you and all of humanity, loves this form of managing your life as one of the plantation slaves. 

Those at the top of this pyramid are smart only in so far as being experts at evil.  Evil genius if you will, but essentially they are anti-life and therefore live in a kind of darkness you may never understand.  This kind of darkness is the absence of real knowing and understanding, so in a sense they are extremely ignorant and unaware that they exist on a very low level a very inferior level of being.  They are lost in such a fundamental way they may never ever in this life go beyond this very inferior negative level of reality.  MDB is one of these people.  You can't save him or raise him higher.  You can only give him the hate and contempt he deserves and loves. So, don't forget to down vote him.

putaipan's picture

s'funny..... but the only economist that i know that completely recognizes this and has any useful suggestions of how to get out of it is ..... wait for it.....a dyed in the wool socialist.

and don't miss his hisorical take on the panama situation, top of the front page. god bless ya doctor!

Escrava Isaura's picture



You Have Been Fooled


Wow. You sound like a Fascist. And if you had used the word natural law, socialism, and tradition, you would sound like a right-wing Fascist.

I highly recommend that you read and watch Richard Werner. Wonder why?

Your post “creme de la creme of economic geniuses” is totally garbage. You’re correct about Central banking planning for economic growth but no economists are needed. There are empirical evidence in Japan and Germany for that.

Secondly, EVERY economic theory is flawed because it excludes key components/assumptions. Assumptions that are intentionally excluded, because the models/theories wouldn’t work, as they don’t, and never will. Below is an example:“#t=31m08s


Yukon Cornholius's picture

What's the differences between central banking and central planning?

Bill of Rights's picture

They did fail, where the fuck were you in La la land...

LawsofPhysics's picture

You sound like a scared paper-pusher.  Without banks we actually have a free market where productive people (not useless paper-pushers) can actually exchanges goods and services of real value.

don't give yourself away now MDB.

zeropain's picture

holy fuck dude your so cracked out QE, i can see the pot marks on your face from seven years of main line QE that you leveraged, to support your coke habbit and hookers.  or you a longterm bond guy with a wife and kids that go to private school, with that much overhead, guess you always expect the ignorant masses to kickin and support your picket fence with volvo hybrid.  fuck you asshole.  you made the bet, you take the hit when the shit hits the fan, not the savers who were responsible.  fucking asshole!

Kayman's picture


What is the alternative?   Now we have the real comedian back.

Bust the banking cartel into a  100 pieces so that when 1 bank fails they can just go down the sewer where they belong.

Time to stop coddling rotting dinosaurs.


bobsmith5's picture

Wow, it is really hard to imagine a mind this fucked up that it would embrace a thrid world war to justify it's evil mentality. 

These banks are "TOO BIG TO EXIST" and should be destroyed.  These banks were created to eventually bring us to a third world war so that the world could be one under a "NEW WORLD ORDER", as predicted by Grand 33 degre mason, Alfred Pike. "Ab chao, ordo".  If this does not show you how horribly evil MDB really is nothing will.

Again, these banks and the fiat monetary system were designed to fail and they will fail regardless of what you, I, or anyone thinks or does.  The ONLY thing you can do is prepare for this.  When?  Nobody knows, but happen it will.

I have now come to regard MDB as some kind of demon incarnate as a result of the above comment.  Thank you MDB for exposing for all the world to see just how evil and rotten you are.  This is why you loved to be hated and thrive on it.


OldTrooper's picture

The eye that looks ahead to the safe course is closed forever.

The Collected Sayings of Muad'Dib

Ward no. 6's picture

u have a good point about salaries so i will plus u for that

Raging Debate's picture

Zeropain - Its called getting ahead of the PR curve. He can cant be kicked indefinately and the private central bank known as the Fed wishes to retain its franchise. After all, it is a franchisee no different than a McDonalds franchise with BIS as the parent corp. 

onewayticket2's picture

Letter dated the day after the "unannounced" Fed meeting and Janet/Barry "emergency" meeting.....



DollarMenu's picture

Hey, it's clear...If JPM goes, the .gov is already gone.

So, why plan?

bobsmith5's picture

Exactly Pinto, what MDB misses is that this system WAS DESIGNED TO FAIL.  It will fail and all of the horrors he describes WILL come to pass. You must prepare for this to happen, nothing can stop it.  Currency is not money, it's a money substitute for money that would be on deposit, i.e. gold, silver, or anything which can act as a store of value.  Those real stores of values still exist in some form everywhere.  Once the collapse occurs they will immediately be reinstated to common usage into the economy, at first locally then eventually everywhere.  So, it's not a matter at all of preserving the status quo, it cannot be done.  The only thing you can do about it is prepare for it. PERIOD!

ersatz007's picture

"The Federal Reserve and FDIC are clearly fingering their worry beads over the issue of “liquidity” in the next Wall Street crisis. That obviously has something to do with the fact that the Fed has received scathing rebuke from the public for secretly funneling over $13 trillion in cumulative, below-market-rate loans, often at one-half percent or less, to the big U.S. and foreign banks during the 2007-2010 crisis"


So let me get this straight, the same organization that lent the banks trillions of dollars and enabled them to become larger by using said trillions of dollars to buy up smaller banks and expand their exposure to derivatives is complaining that these banks don't have a good wind down plan.


Kind of like wondering why your kid who throws parties whenever you leave town forgot to take the trash out. 



markettime's picture

Here is our exit plan, it is called massive bail-ins bitches! So you will keep doing our bidding while we have a strong hold on your re-election chances. 

Mercuryquicksilver's picture

JPMorgan is the Fed.  This is just further justification for TBTF preparations.

JP Morgan and the Fed will fail. They allready have failed. Just tear the band aid off already!

zeropain's picture

you think after trump gets elected that he will side with the bankers or you think he will want to be popular on TV selling the glorious brand of president TRUMP!  I also doubt paul ryan is going to play along so nicely.

Jeffersonian Liberal's picture


Will you take a couple of writing classes already? Your writing is too weak for your satire to be successful.

Good satire takes tremendous writing skill because the writer must continually walk the razor's edge between seriousness and ridicule. If you fall to one side, there is no humor and your writing appears to support the subject. If you fall to the other side, your writing becomes nothing but comedic blather.

You do not walk that razor's edge well enough to be writing satire.

So either have the spine to come out in full support of these positions you write about or develop your writing skill a bit so that people can enjoy your satire.

Or you can just grow the hell up and stop hi-jacking every thread to become the center of attention.

MillionDollarBonus_'s picture

I only become the center of attention if people choose to respond to me. If you read my comment as satire, I'm afraid you are mistaken my friend. The threat of a deflationary collapse is very, very real, and simply dismissing my words will not make the problem go away.

Bill of Rights's picture

Not with a printing press you idiot...Market will make all new highs soon.

you know they are lying because they are talking's picture

Took me awhile to understand MDB.

Now, the messages he is trying to convey, are crystal clear to me. Some fools just cannot get "it" until somebody states the problem from a different (and ridiculous) perspective.

MBD catches the attention of those still stuck in the Matrix, and makes them think.

I have no idea if his style or punctuation is correct. Who cares. If I wanted that I could read any of the lies coming out of the Main Stream Media, all perfectly punctuated.

I read every one of MDB's posts and enjoy them.

Please keep it up.


LawsofPhysics's picture

The problem is asshats like yourself that really believe real goods and services can be "printed" out of thin air.

Sorry, it's going to be fun taking your motherfucking head MDB.  Even the Fed is admiting inflation is above their target, yet where are interest rates again?  Those of us that produce things of real value are not afraid, useless paper-pushers like yourself should be.


Latitude25's picture

Thanks a billion MDB for finally revealing to all of ZH that you are dead serious.  Now fuck off and die.

bobsmith5's picture

Oh my god, MDB actually responds to someone rebutting his diatribe.  I'm stunned.

No, MDB is not satire.  He is real, and the proof that he is real, is that he has created a website to express his mindless drivel.  I say mindless, because at the root of the MDB epistemology there are so many false premises upon which his economic and political ideas are built ,that it's as if there is no mind, at all, at the very foundation of his intellect.  Common sense is just not to be found within the constructs of the MDB mind. 

They very purpose for creating a central bank, is to prevent deflationary collapses and since the whole world is now controlled by central banking, no total deflationary collapse is possible.  What will happen eventually is every single currency in the world will eventually hyper-inflate to infinity and become worthless.  The ultimate goal of central banking is to create a one world monetary system and government and as these currencies become worthless they will be absorbed into the "new world order" monetary system.  Therefore, if the world accepts this new system it will come in the form of cashless society and may be gold backed.  Exactly how this all plays out remains to be seen.

Jeffersonian Liberal's picture


Thank you for finally coming clean and explaining that you are serious. No doubt, a deflationary spiral is catastrophic. So is hyperinflation. If we get anywhere near either of these to economic possibilities (likelihoods, thanks to central banking) we are all going to be hurting so badly no one will care who was right and who was wrong. We will be fighting for survival.

Seriously, though, I do appreciate you coming clean and I respect you far more now that you've clearly stated that you are being serious...this even though we are diametrically opposed as to which economic, monetary, and political policies are most protective of freedom and prosperity.


Kayman's picture


Inflationary collapses follow inflationary idiocy. It's like trying to prevent exhaling. 

Escapeclaws's picture

MDB, this is so meta! You are the master of meta! But if you go one more degree meta, I'm not sure I will not fall off your wheezing jalopy.

Badsamm's picture

May the first bomb land on your head

Cloud9.5's picture

It’s not really that hard MDB.  Any private institution that because of its size and complexity poses a systemic risk to the Republic should by systematically unwound under the Sherman Anti-Trust Act.  Bell Telephone was broken up and we did not lose our communication link and the system did not crash.  JPM got his big leg up during the Civil War selling defective rifles to the Union Army.  The fact that men fighting for the North lost their eyes and fingers was of no concern to old JP.  The legacy continues.  If we had a functioning Justice Department, JPM would be sorted out, its assets seized and sold off to regional banks.  The Perps would do the perp walk and the other thieves hiding in the wings would be rushing in to make a deal.  We would get curtailment in the system of frauds and life would go on. I am sure that somewhere in all the banter back and forth there is a veiled threat to shut down the EBT system setting the streets on fire.  If anything happens before the system breaks I will be amazed.

Lugnut's picture

Every time I read an MDB post I do so in my head with Larry Kudlow's voice. Or sometimes Steve Liesman, just to mix it up a bit. Always makes me smile.

thinkmoretalkless's picture

Blackmail. Soon "Give me liberty or give me death" will not just be for the history books anymore.

RichardParker's picture

we may find ourselves without a job, without a house and no money in the bank


That's already happening.

flysofree's picture

Have you looked at the Velocity of money? The money stopped flowing long time ago, that's why there are some 94 million Americans out of the labor force.

Latitude25's picture

Money already in PMs -check

House paid off -check


Job unimportant- check


Any other questions?


bagehot99's picture

So the banks are all awesome? That is the result of 7 years of Obama's lies and deception - an Obama shill now comes on here and without blinking tells us all how amazing and cool the banks are. The banks that Obama blamed for the financial crisis during his first campaign. What a TOOL.