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
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
Sport
premier leagueMatch report: Arsenal 1 Man United 2
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Sport
Jonny May scores for England
rugby unionEngland 28 Samoa 9: Wing scores twice to help England record their first win in six
PROMOTED VIDEO
News
ebooksNow available in paperback
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

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, say DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin