The Hill News

When JP Morgan, the nation’s largest bank reports a $2 billion gambling loss, it’s time to reconsider a measure that failed to make the cut when Congress approved financial reform law in 2010: a limit on bank size. On May 9, Senator Sherrod reintroduced  the Safe, Accountable, Fair and Efficient Banking Act (SAFE  Act). This limits any bank from holding more than 10 percent of total U.S. deposits, and caps total liabilities to about $1.3 trillion.

Even bankers agree that we haven’t solved the “too big to fail” problem, where failure of a large bank could lead to another taxpayer bailout. 

Yes, Dodd Frank includes many important tools to restrict excessive risk-taking, such as the Volcker Rule. CEO Jamie Dimon, however,  claims the Volcker Rule didn’t apply. He claims the failed bet constituted a “hedge” undertaken for risk management. If risk management undertaken by the firm credited with inventing the discipline can go this ! wrong, sterner measures may be necessary. MIT economist Simon Johnson concludes, “The lessons from JP Morgan’s losses are simple. Such banks have become too large and complex for management to control what is going on.”

Read more...