JPMorgan Flaws Should Ring Alarm Bells Everywhere

JPMorgan was supposed to be among the best managers of bank risk in the world. This week it published an internal report into the failings which led to $6.2 billion of trading losses at its chief investment office in 2012. If the mix revealed – conflicting mandates, discredited theory, inadequate checks and primitive technology – is really as good as it gets, financial watchdogs and investors everywhere should worry. There are plenty of lessons for regulators and bank executives who want things done right. First, the controls should match the mission of a unit that manages excess cash, as the CIO did, and is trying to make money in the process. The report suggests JPMorgan’s supervision was set for the days when the CIO was a sleepier and much smaller operation which engaged in simple, old-fashioned hedging. Not enough changed when the CIO morphed into a trading operation that was ...