The Federal Reserve’s Office of Inspector General is conducting an “evaluation” of how the Fed Board and the Federal Reserve Bank of New York supervised JPMorgan Chase & Co.’s (JPM) chief investment office after losses exceeding $6.2 billion in the first nine months of 2012.
The OIG said in its semi-annual report to Congress that it initiated a “scoping review” and “subsequently initiated evaluation work” on the JPMorgan incident involving credit derivatives trades.
The evaluation aimed to “assess the effectiveness of the Board’s and FRB New York’s consolidated and other supervisory activities regarding” JPMorgan’s Chief Investment Office and “identify lessons learned for enhancing future supervisory activities,” the OIG said in its semiannual report, which Inspector General Mark Bialek submitted October 26.
JPMorgan, the largest U.S. bank, suffered losses on a bet on credit derivatives in a London unit of the chief investment office. Chief Executive Officer Jamie Dimon, 56, said “egregious mistakes” were made in risk management.
At least a dozen state, national and international enforcement agencies are investigating the trades, news of which initially erased as much as $51 billion in market value.
JPMorgan’s losses occurred in a part of the bank the Fed does not directly oversee. The Fed has responsibility for JPMorgan’s holding company and its affiliates, while the chief investment office was housed in the national bank which is overseen by the Office of the Comptroller of the Currency, according to June 19 testimony by Comptroller Thomas Curry.
Curry told the House Financial Services that the OCC had 65 onsite examiners at JPMorgan “who are responsible for reviewing nearly all facets of the bank’s activities and operations, including commercial and retail credit, mortgage banking, trading and other capital markets activities.”
In a scoping review inspectors “figure out how far they are going” to look into an issue, said Gilbert Schwartz, a partner at Schwartz & Ballen in Washington and a former Fed attorney.
Fed OIG spokesman John Manibusan didn’t immediately respond to an e-mail and a phone message seeking comment. New York Fed spokesman Jack Gutt also didn’t immediately respond to an e-mail or phone message requesting comment.
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