The Fed Sends A Frightening Letter To JPM | Zero Hedge

From 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……

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.”

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….

….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.

Contagion and derivatives exposure….. two facets of the same problem. To me the question is: why are too-big-to-fail banks allowed to carry such high derivative exposure? Wells fargo (WFC) seems to be the only big bank who is not swimming naked.

Source: The Fed Sends A Frightening Letter To JPMorgan, Corporate Media Yawns | Zero Hedge

5 Replies to “The Fed Sends A Frightening Letter To JPM | Zero Hedge”

  1. Shouldn’t the Fed have sent the letter to President Obama asking why the clay-footed non-leader of the free world didn’t fix it eight years ago when he had the chance? Lobbing stink bombs at banks operating within the legal framework is just theatre and grist for the new Presidency campaign.

    1. Hi frank,
      I share your “clay-footed” sentiment but eight years ago the Fed was pushing $16 trillion of low-interest loans to keep the banks afloat. Not a good time to hit them with tighter controls. But now that they are back on their feet, give it to them good and hard: progressively ramp up capital and leverage ratios and clamp down on excessive derivatives exposure.

  2. I’m sure you are right Colin, but almost everyone was back then (some still are) clinging by their fingernails to the crumbling edge of the precipice created by the banks themselves. I don’t see how being nice to banks back then and smacking them eight years later does anything but make the Fed look like a slow witted dog trainer who kicks the dog weeks after it peed on the carpet.

    The article says “frightening letter”. Not sure who it’s meant to frighten. I doubt much frightens a bank CEO except perhaps a zero personal bank balance, or seeing the inside of a paddy wagon, neither of which are likely in the USA.

    Still, training has to start sometime. Better now than never I guess. And if anyone should see the inside of a paddy wagon its President Clinton for opening the flood gates in the first place. I still don’t understand why he’s liked so much when he legislated for banks to gamble recklessly with deposits, inexorably driving us to a meltdown. Sometimes I think I must live in a different universe, but life is interesting, if nothing else.

    1. “….if anyone should see the inside of a paddy wagon its President Clinton for opening the flood gates in the first place.”

      Now you are getting close to the source. I reckon everyone in the picture should have been locked up. Bankers are more afraid of incarceration than multi-million dollar fines (paid by shareholders).

      Clinton signs repeal of Glass-Steagall Act
      Source: WSJ – John Reed on Glass Steagall

      The banks had their snouts in the trough but regulatory capture was the real culprit.

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