Is JP Morgan’s recent $2bn trading loss a reason to strengthen banking regulations?
YES
Tony Dolphin
The $2bn (£1.24bn) trading loss at JP Morgan is bad news for its shareholders, bad news for its employees and bad news for its senior executives. But, so far, US taxpayers have not lost a cent. So why does it advance the case for tougher financial regulation? Because if this can happen to JP Morgan, which was regarded as one of the better-run banks, it can happen to a weaker bank that might need a government bail-out in similar circumstances. If banks want to engage in speculative trading of little or no social worth, regulation is needed to ensure that taxpayers will not have to bail them out. Banks that accept retail deposits should either face severe restrictions on their proprietary trading activities, or should be forced to ring-fence retail deposits so that they are immune from trading losses.
Tony Dolphin is senior economist at the Institute for Public Policy Research.
NO
Juliet Samuel
From the reaction to JP Morgan’s $2bn trading “screw-up,” as its chief executive Jamie Dimon called it, you might think that the US’s biggest bank had just cheated millions of grannies out of their life’s savings. Instead, after tax, it has lost $800m, equivalent to just over four per cent of last year’s profits. Even if, as expected, the loss increases, it is still very, very far from an existential threat. As others have pointed out, there is no real difference between wicked prop trading and any other kind of lending. Handing people hundreds of thousands of dollars to buy houses is pretty speculative business, for example. So is buying strange and complicated derivatives. Horses for courses. There is only one change bank regulators need make and it is already in progress: making sure that bust banks are not bailed out, but wound up. All this loss shows is that banks that live by their mistakes must also be allowed to die by them.
Juliet Samuel is chief reporter at Morning Wire