U.S. Comptroller of the Currency Thomas Curry, whose agency is the main regulator for JPMorgan Chase & Co.’s North American bank, said that operational risks are eclipsing credit risk as the regulator’s chief concern.
Without naming JPMorgan specifically, Curry said that operational risk -- the risk of loss from failures by people and bank processes -- is “high and increasing” and made worse when bank procedures are most complex.
“Some of our most seasoned supervisors, people with 30 or more years of experience in some cases, tell me that this is the first time they have seen operational risk eclipse credit risk as a safety and soundness challenge,” Curry said in remarks prepared for delivery today before the Exchequer Club of Washington. “Rising operational risk concerns them, it concerns me, and it should concern you.”
Curry said the OCC, which regulates U.S. national banks, has seen faulty management of the “interrelationship of risks in different markets on the value of the institution’s assets” and that the agency has too often seen “conspicuous and expensive examples of the toll that one form of operational risk -- flawed risk models -- can take.”
This speech, a week after JPMorgan’s Chief Executive Officer Jamie Dimon said the bank made “egregious” mistakes and had so far lost about $2 billion tied to synthetic credit securities, is the first scheduled by Curry since being confirmed by the Senate last month to become Comptroller of the Currency.
‘Breakdown of Control’
Bryan Hubbard, an OCC spokesman, said yesterday that the agency does not “approve specific models” or trades at the banks it oversees, including JPMorgan Chase Bank N.A. He said the agency focuses on “risk management policies, processes, procedures, limits and controls” and in the case of JPMorgan are looking to see whether a “breakdown of control” caused the bank’s activities to swing far from expectations.
“The primary bank regulators are at fault here for not anticipating this better and short-circuiting the risk-taking better, and they have to own up to that responsibility and be accountable,” said David Hendler, an analyst at CreditSights Inc., a New York-based research firm.
In his speech, Curry also cited third-party relationships and anti-money laundering compliance as frequent points of operational risk at banks.
“All institutions, regardless of size, must resist the temptation to under-invest in the systems and controls they need to prevent greater risk and larger losses in the future,” he said.