JPMorgan Chase & Co.’s $2 billion trading loss shows regulators need to focus on ensuring banks have enough capital relative to their risks, rather than trying to ban proprietary trading, Sallie Krawcheck wrote in a Financial Times op-ed article.
It’s often impossible to distinguish between proprietary trading, services for clients and hedging, said Krawcheck, former head of Bank of America Corp.’s wealth-management division. Regulators should instead work to measure how much risk banks have and on improving inadequate risk measurements, in order to guarantee lenders have the right amount of capital, she wrote.
Bank regulators shouldn’t allow any activities that are too complex for their risk models or stress tests to assess, Krawcheck said. They also need to complete new regulations on credit-rating companies, which could then act as “an unbiased partner in assessing bank risk,” she added.