Dimon Gives Regulators New Ammunition for Tougher Volcker Rule

By Steven Sloan and Silla Brush

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon conceded a key point when pressed by lawmakers about a proposed ban on proprietary trading at banks: Had the rule been in place, it may have prevented the firm’s recent $2 billion loss. The ban “may very well have stopped parts of what this portfolio morphed into,” Dimon said yesterday in testimony to the Senate Banking Committee. Dimon’s comments provided new ammunition to lawmakers and regulators emboldened by JPMorgan’s mistakes who argue that a stricter ban on banks using their own money to make trades is needed to prevent a repeat of the 2008 financial crisis. Hedging ‘Boring’ – Such a strategy can easily backfire on a bank, said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm. “Hedging should be boring,” she said. “If they make a lot of money, they could also lose a lot of money and they’re not hedges. More importantly, if people engaged in the transaction are rewarded for those profits and revenues, then they’re not being paid to hedge and by definition anything they do is not hedging.”