ABA Banking Journal - June 2012 - (Page 6)

editor’s column | by bill streeter Are we overreacting here? When the news came out last month about J.P. Morgan Chase’s $2 billion trading loss, you just knew what was going to follow. Even Chase CEO Jamie Dimon acknowledged as much. And so in a way the waves of shock, outrage, finger-pointing, “I told-you-so’s,” investigations, hearings, etc., isn’t too surprising. It’s a testimony to how inured we’ve become to the politics of extremes. But that doesn’t mean it’s acceptable. Contrast the treatment received by General Motors over safety issues with its Volt electric car some months ago (batteries caught fire following a crash test) with that received by Chase. Both companies are giant corporations— leaders in their fields. Both received government support through TARP. But there the similarities end. General Motors filed for bankruptcy. Having reorganized with new management, it is profitable again, but the government remains its largest shareholder. Chase took TARP money at the government’s insistence, and paid it back early. But the bank was—most would concur—the strongest of the large banks during the financial crisis. In fact, the bank worked closely with the government in acquiring two very large failing institutions. Its ability to accomplish this at a critical juncture helped stabilize the system. No matter. To hear the chorus of critics in Washington, the media, from consumer groups, and elsewhere, you’d think the bank had deliberately sabotaged the GNP. For weeks now, almost daily, have come calls for more rules, asset-size caps, reinstatement of Glass-Steagall, toughening of the already complex Volcker Rule, banning bankers from serving on Federal Reserve Bank boards, and on and on. This despite the fact the 1,100 page Dodd-Frank Act is still only partially implemented. It is a massive overreaction to a mistake made by one company. Two billion dollars is a heck of a lot of money to be sure. But it’s only a small percentage of the bank’s 2011 earnings. The trade didn’t bet the bank; didn’t cost taxpayers a cent; didn’t injure anyone (reputations and several jobs aside); did not force anyone from their homes; will not lead us into a war; and will not increase carbon in the atmosphere. Banks are not all, or always, above reproach. And if there is corruption and fraud involved in this or other situations, it needs to be rooted out. But mistakes are another matter. To follow the current example applied to banks, execs from GM (or GE or IBM or Apple) should be called before Congress when their products fail to sell or their strategies flop. In any line of business, things can— and often do—go badly on occasion, sometimes in a hurry. Banks are in the risk business, whether it be lending (plenty of risk there) or, yes, trading. You cannot eliminate risk. Obviously this wouldn’t be such a big deal if the events of 2008 hadn’t occurred. And there are serious issues to be addressed: the relationship between complexity, size, and risk controls, for example, and what role regulations and supervision should play in that. But what we’re now witnessing is an over-the-top reaction. n “Two billion dollars is a big mistake, but the trade didn’t cost taxpayers a cent” bstreeter@sbpub.com 6 | ABA BANKING JOURNAL | june 2012

Table of Contents for the Digital Edition of ABA Banking Journal - June 2012

ABA Banking Journal - June 2012
Contents
Chairman’s View
Editor’s Column
The Economy
Bank Notes
Picture This
ABA Community Banking: A purpose-built bank
Pass the Aspirin
Tech Topics
Science of the complaint
Top-performing community banks
Compliance Clinic
ABA Resources
Legal Issues
First Person

ABA Banking Journal - June 2012

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