AFR Statement: JP Morgan Trading Losses Underline Need for a Strong Volcker Rule



JP Morgan has just announced that it has taken some $2 billion in losses on its synthetic credit portfolio, with more losses likely in the near future. In case we needed yet another reminder of the need for strong regulation of the largest Wall Street banks, here it is.

In particular, these losses underline the need for a strong Volcker Rule to prevent risky proprietary trading.  Regulators need to get the rule done, and they need to get it right. The trades that led to these losses were described as ‘hedges’ designed simply for risk reduction and not proprietary risk-taking. Yet as the firm now admits, they proved to be high-risk transactions that led to large losses. That’s why it’s important not to permit bank proprietary trading under the guise of ‘hedging’.   Theregulators current rule has a loose, permissive standard for portfolio hedging that might have permitted these trades under a hedge exemption, even though they clearly violated the proprietary trading ban. We hope that regulators will heed the warning here, and move speedily to finalize a Volcker Rule that is stronger than their initial proposed rule.