Federal Reserve Bank of Dallas President Richard Fisher, when asked about a $2 billion trading loss by JPMorgan Chase & Co. (JPM), said U.S. banks can become so big they lose their focus on risk management.
“You can reach a size where risk management becomes an exercise,” Fisher said today in response to audience questions following a speech to the Texas Bankers Association meeting in Fort Worth. “At what point do you reach a size you don’t know what is going on beneath you?”
Fisher said he wouldn’t comment on an individual U.S. institution, other than express his view that large U.S. banks need to be split apart because they operate with an implied government safety net that imposes their risks of failure on taxpayers. JPMorgan Chief Executive Officer Jamie Dimon said the firm suffered a $2 billion trading loss after an “egregious” failure in a unit managing risks.
“That is not the American form of capitalism,” Fisher said. “We are calling for significant downsizing of those institutions. We don’t feel the Dodd-Frank Act is the answer to the problem.”
“We pray for the big risk management teams in those big New York banks,” the Dallas Fed chief said.
Fed Chairman Ben S. Bernanke said at an April 25 news conference in Washington that policy makers were “making some progress” in averting bailouts by “substantially” increasing supervision and requiring higher levels of capital.
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