That the losses would only dent the quarterly profits at one of the world’s largest banks, and that they were revealed by the bank’s own management, did not diminish the chorus on Capitol Hill for tighter controls. The charismatic and often outspoken Dimon, who has argued rigorously against strict financial regulations, fielded calls Friday from several lawmakers and regulators at the bank’s Midtown Manhattan headquarters.
The biggest blow-up between Wall Street and Washington since 2010, when Congress passed the Dodd-Frank Act to tighten oversight of the financial industry, comes just as regulators are drafting new rules governing banks. A signature feature of the law is the Volcker Rule, a prohibition on banks engaging in speculative bets. The authors of the act say the measure might have prevented JPMorgan’s bad trades had it been in effect.
“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” Rep. Barney Frank (D-Mass.) said.
The $2 billion loss — made by a Britain-based trader known as the “London Whale” because of the size of the bets he placed – was unlikely to make a major difference to the finances of JPMorgan, which earned $19 billion last year.
JPMorgan’s shares lost more than 9 percent of their value Friday.
Lawmakers suggested that Dimon was facing a type of poetic justice after he used the credibility he established before and during the credit crisis — when he avoided excessive risks and scooped up dying firms — to lead the fight against strict financial regulation.
Just last week, Dimon captained a group of top bankers in slamming Dodd-Frank provisions in a private meeting with top Federal Reserve officials in New York.
“We’ve got a situation where he has favored the repeal of Dodd-Frank,” said Sen. Carl Levin (D-Mich.). Dimon’s positions “have been dramatically proven to be wrong in this recent $2 billion loss.”
Republicans also weighed in Friday, with Sen. Bob Corker of Tennessee calling for a congressional hearing into the JPMorgan losses to question whether “taxpayers are fully protected from losses at major financial institutions.”
Dimon made no public comments Friday, spending much of his time, along with other senior executives, talking to officials in Washington about the trades. But in disclosing the losses Thursday evening, the bank chief insisted that the bank caught the mistakes that led to the losses and took action to fix the problem.