Don't Panic After Reading This JPMorgan Whale Story

If regulators want to restore public trust in banking, they might try trusting the public.

With about 300 pages of text and almost 600 pages of exhibits, there are plenty of news nuggets left to mine in last week's Senate report on JPMorgan Chase & Co.'s London Whale trades. Here's one: How JPMorgan's federal regulator downgraded its rating of the bank's management -- and no one got hurt.

The Office of the Comptroller of the Currency downgraded the bank's management in July 2012 for its "lax governance and oversight in the chief investment office," as well as other "oversight deficiencies," according to the report by the Senate Permanent Subcommittee on Investigations, which quoted an OCC supervisory letter to JPMorgan. Management effectiveness is one of six components in the OCC's usually secretive "Camels" rating system, used to monitor banks' safety and soundness. (The others are capital adequacy, asset quality, earnings, liquidity, and sensitivity to market risk.)

The Senate report didn't say what management rating the bank received, only that it went down. Nor did the report divulge the bank's overall Camels score. Under the five-point Camels scale, a rating of 1 is the best while 5 is the worst.

Banking regulators have long said that information about Camels ratings is confidential, and that disclosure of this and other nonpublic material from bank-examination reports can lead to criminal charges. (Fortunately this admonition doesn't apply to congressional investigations.) The theory here is that the public can't handle this sort of knowledge, and that banks could suffer great harm if it leaked.

By disclosing the OCC's downgrade, the Senate panel highlighted the ridiculousness of the confidentiality rules. JPMorgan didn't collapse. The public didn't panic. Depositors didn't flee. Rather, we're all more informed.

Bank-examination ratings should be public information -- the same as restaurant-inspection scores. If regulators want to restore the public's trust in banking, they might try trusting the public.

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