Stephen Foley: At a stroke, Jamie Dimon has become Exhibit A in the case for regulation

 

US Outlook Whatever Jamie Dimon says, JPMorgan Chase's employees don't think the Volcker Rule is a waste of time. The company's chief executive has mocked and mocked and mocked the new rule that bans proprietary trading in Wall Street banks – which is why he is so angry with himself for failing to spot that his own proprietary traders had put on a bet which could blow a $4bn hole in JPMorgan's profits.

At a stroke, when the first losses were announced, Mr Dimon went from being Wall Street's most effective advocate for watering down Volcker to being Exhibit A in the case for regulation.

How seriously now are we to take his 38-page letter to shareholders in which he assails the costs of new regulations in general, and the "mind-numbing complexity" of the "impossible to implement" Volcker Rule in particular?

Mr Dimon is on record saying Paul Volcker, a former chairman of the Federal Reserve and first proponent of banning prop trading, "doesn't understand capital markets" and that implementing the rule will require every trader to be accompanied by "a lawyer, compliance officer, doctor to see what their testosterone levels are, and a shrink asking 'What's your intent?'"

I'm no fan, actually, of the Volcker Rule, which I view as largely irrelevant to fixing the causes of the credit crisis, for reasons I have set out here before. It is absolutely as complex as Mr Dimon suggests, and it has to be so. In order to ban prop trading, you first have to define it, and when you try, you are immediately in the weeds.

Banks make markets. Every trade they make involves holding some assets on their balance sheet for some period of time. We want our banks to make profits and to hedge any big risks on their balance sheets. There is no clear line separating acceptable holdings and hedges from unacceptable "prop trading". It does indeed turn on what is the "intent" of a bank's trading position.

Regulators are not proposing the introduction of doctors and psychologists, though. Instead, they have approached the unenviable task of defining prop trading mathematically. They are requiring banks to build new systems for collecting data on more than a dozen metrics, on issues like how long they hold assets and on which type of clients these assets are traded with.

And here's the surprising thing. Within JPMorgan, this is not a universally hated exercise. In fact, some people are feeling downright positive about it. Diane Genova, general counsel of JPMorgan Chase's investment bank, speaking at the International Swaps and Derivatives Association conference earlier this month, called the proposed metrics "a really good effort" to define prop trading, and she went on: "We would probably use these anyway as risk management tools. Getting ready to implement these would not be a waste of time."

The reason nobody can tell you whether the London Whale's disastrous trading at JPMorgan would have been banned by the Volcker Rule is because no one quite knows what will come out of this black box of mathematical calculations under Volcker.

Modern capital markets are complex places, like it or not, and they require complex regulation. If Jamie Dimon believes the Volcker Rule is too complex to implement, it follows that his bank is too complex, too.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Loren Hughes: Financial Accountant

£45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

Sheridan Maine: Finance Analyst

Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

Sheridan Maine: Financial Accountant

£150 - £190 Daily Rate: Sheridan Maine: One of London's leading water supplier...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor