FED regulators in hot seat

The timing of JPMorgan's $2 billion-plus trading loss made public last week by Jamie Dimon over an emergency call with analysts was an awkward timing for the Fed. It raised serious questions about whether the New York Federal Reserve and other regulators were asleep at the wheel or whether it is asking too much of them to keep up with the financial engineering conducted by complex institutions with diverse, global operations. Despite the Fed ramping up the number of staff embedded at JPMorgan Chase & Co since the financial crisis, it is unclear whether any of these regulators detected something high-risk and untoward going on in JPMorgan's Chief Investment Office in New York or in London. This will raise issues again on the appropriateness of using Value at Risk (VaR) models by banks given its inherent limitations as a way of measuring risk. VaR represents the potential losses in a trading portfolio over a given period of time at a given level of market confidence. That covers almost all eventualities. The trouble is that problems almost always arise in the ones that are not covered… Eric Tan, London