A top regulatory official Tuesday told a U.S. House panel an expanded investigation is looking into JP Morgan Chase's massive losses in May.
JPMorgan Chase, the nation's largest bank, suffered an unexpected loss of more than $2 billion, rocking the financial community. The bank lost the money in a lightning fast 15 days in a series of bets on credit default swaps in a bid to hedge risks. The company's chief investment officer retired in the wake of the losses.
Appearing before the U.S. House Committee on Financial Services, Martin Gruenberg, acting chairman of the board of the Federal Deposit Insurance Corp., said: "The FDIC has added temporary staff to assist in our current review. ... [The FDIC and other] agencies are conducting an in-depth review of both the risk-measurement tools used by the firm and the governance and limit structures in place within the chief investment office unit where the losses occurred.
He added, the "FDIC joined the [Office of the Comptroller of the Currency] and the New York Federal Reserve Bank in daily meetings with the firm" after the debacle. "Initially these meetings focused on gaining an understanding of the events leading up to the escalating losses."
He said the FDIC has continued to participate in the daily meetings between the firm and its primary regulators. "We are looking at the strength of the [chief investment officer's] risk-management, governance and control frameworks, including the setting and monitoring of risk limits."
Although the focus of the review is the circumstances that led to the losses, "the FDIC is also working with JPMorgan Chase's primary federal regulators to assess any other potential gaps within the firm's overall risk-management practices," he said.
"Without speaking to the specifics of the case ... the recent losses attest to the speed with which risks can materialize in a large, complex derivatives portfolio," he said. "The recent losses also highlight that it's important for financial regulatory agencies to have access to timely risk-related information about derivatives and other market-sensitive exposures, to analyze the data effectively, and to regularly share findings and observations."
The committee also heard from Thomas Curry, comptroller of the currency at the Treasury Department; Mary Schapiro, chairwoman of the Securities and Exchange Commission; Gary Gensler, chairman of the Commodity Futures Trading Commission; and Scott Alvarez, counsel for the Federal Reserve System Board of Governors.