WASHINGTON --The FBI has opened a preliminary inquiry into the $2 billion trading loss at JPMorgan Chase & Co.
“We are aware of the matter and are looking into it,” said a Justice Department official who has been briefed on the probe but was not authorized to speak publicly. “This is a preliminary look at what if anything might have taken place.”
The inquiry by the FBI’s financial crimes squad in New York is in a “preliminary infancy stage,” the official said Tuesday, and federal law enforcement agents are pursuing the matter “because of the company and the dollar amounts involved here.”
The FBI joins the Federal Reserve, the Securities and Exchange Commission and regulators in Britain in investigating the loss on trades meant to help protect JPMorgan against credit risk. Instead, the complex trades backfired, causing a huge hit to the bank’s bottom line and its reputation.
Treasury Secretary Timothy F. Geithner on Tuesday called the loss a “failure of risk management.”
“The Fed and the SEC and the other regulators, and we’ll be part of this process, are going to take a very careful look at this incident of course and make sure that we review the implications of what that means for the design of these remaining rules,” Geithner said.
The ability of JPMorgan and the financial system to withstand the loss showed that reforms put in place after the 2008 financial crisis have worked, particularly the requirement for banks to hold more cash in reserve, Geithner said during an appearance at the Peter G. Peterson Foundation’s 2012 Fiscal Summit.
But the huge loss by the nation’s largest bank also highlighted the need for tough implementation of the so-called Volcker Rule on proprietary trading and other rules that regulators are still finalizing.
“We are going to work very hard to ensure that these reforms are tough and effective, not just the Volcker Rule, but the broader compliment of reforms on capital and liquidity,” Geithner said.
President Obama promised that federal officials would investigate the incident.
He praised JPMorgan as one of the “best-managed” banks and called Chief Executive Jamie Dimon as one of the “smartest bankers” in an appearance on ABC’s “The View.” But he said the 2010 financial reform law was needed to prevent broader fallout.
“The whole point was, even if you’re smart, you can make mistakes, and since these banks are insured backed up by taxpayers, we don’t want you taking risks where eventually we might end up having to bail you out again, because we’ve done that, been there, didn’t like it,” Obama said.