I have written a number of Blog Posts before about JPMorgan Chase’s overstepping the lawful bounds. Improper mortgage sales (mostly inherited from Washington Mutual, which it bought for a song in 2008), securities trading improprieties, packaging mortgage-backed bonds which it knew were toxic, the “London Whale” losses–which was a failure to properly supervise, and the list goes on. Year-to-date, JPM has paid more than $20 Billion in fines and penalties. Well, now the LIBOR Fiasco has hit the fan.
“LIBOR” (London Interbank Offered Rate) is the key global interest rate, at which banks lend short-terms funds to each other. Many other loans are pegged to it, as well. In fact, more than half of the loans (both institutional and retail) are based on LIBOR. It is comparable to the Federal Funds Rate, which is managed by our Federal Reserve.
Earlier this year, regulators in both London and the U. S. asserted that a group of global banks had manipulated the LIBOR Rate. While the Federal Reserve manages the Fed Funds rate itself, LIBOR is set by compiling a group or interest rates proffered by a group of global banks. It was determined that those rates were manipulated, and among the various banks involved, JPMorgan Chase and Citibank were named, among four others. Perhaps, others might be named in the future.
Keep in mind that both JP Morgan Chase and Citibank were two of the “Two Bigs” (Too Big to Fail) banks which were basically “loaned” $25 Billion–interest free–to jump start the Economy in 2008, during the Great Recession. Unfortunately, the banks didn’t use those “gifts” for their intended purpose–making loans which would enable businesses, small and large, to function and provide jobs. NO…they didn’t do that; however, the senior executives of the Too Bigs continued to receive their exorbitant salaries and outlandish bonuses. Perhaps they figured: I got mine, so what!
JPMorgan Chase might very well have provided one element to turning the over-the-top banks around. Following the Great Recession (late 2007- to-early 2009), The Dodd-Franks Legislation was passed to re-establish Government control over the Banking System; however, the Wall Street Lobby has surely been fighting it tooth and nail.
Part of Dodd-Frank was the “Volcker Rule”, which required the banks not to take risks with clients (FDIC-Insured) deposits. The London Whale situation caused Morgan Chase to lose $6 Billion, perhaps more. This was the case of a failure to manage and recognize risks, by what was commonly assumed to be out biggest, safest and best-managed bank. Accordingly, the trading risks by banks may very well be eliminated, at least with regard to client deposits. That is basically thanks to the London Whale–which made it hard for anyone to ignore the fact that JPMorgan Chase could not actually manage itself.