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Fed chastises JPMorgan over losses

By Claes Bell ·
Thursday, January 17, 2013
Posted: 3 pm ET

JPMorgan Chase & Co. will have a little extra regulatory homework to do this year, thanks to a recent penalty handed down by the Federal Reserve.

Beginning in 2011, the banking giant took a gargantuan gamble on complex investments called derivatives. Those investments came up snake eyes in April of last year, when the market turned against JPMorgan, resulting in a loss of more than $6 billion. A loss of that magnitude was widely expected to draw the ire of regulators, who've been trying to crack down on excessive risk-taking on Wall Street since a financial crisis nearly brought down the U.S. economy in 2008.

Against that backdrop, the Federal Reserve issued a cease and desist order against the bank. The order requires the bank to come up with detailed plans to fix the risk management and corporate oversight failures that caused the loss and send the Fed monthly progress reports, according to a research note from David Konrad, an analyst for Keefe, Bruyette and Woods.

Those reports will no doubt be costly to produce and could generate some negative headlines, but overall the Federal Reserve order isn't likely to hurt the bank much, according to Konrad.

All in all, with no admission of guilt, no one in the company specifically was called out for wrongdoing, and with no fines, it appears the megabank got off easy. But while the Fed may think losing $6 billion and public humiliation is punishment enough, international banking regulators don't appear to agree. The Financial Services Agency, the British equivalent of the SEC, has opened up a formal inquiry into the incident and could eventually impose harsher penalties.

Do you think regulators are being too hard on JPMorgan Chase or too easy?

Follow me on Twitter: @ClaesBell.

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