According to reports, JPMorgan reportedly failed to heed an investor advocate group’s warnings more than a year ago that the bank should improve its risk controls. In particular, JPMorgan allegedly dismissed investor warnings that it was not keeping up with other major banks’ actions, which increased board oversight of investment risks. Following a $2 billion trading loss in May, JPMorgan is now poised to enhance the level of expertise of the individuals serving on the investment risk oversight board.
Critics contend that the bank still has oversight weaknesses, namely, the relative power of the bank’s chief risk officer. Former JPMorgan traders have stated that the company’s chief risk officer was not focused on the losing bets the chief investment officer made in the credit markets. JPMorgan disputes these contentions stating that there is no lack of authority in the chief risk officer’s office. Critics assert that after weathering the credit crisis, JPMorgan became complacent and loss ground in their risk management operations. For support, critics point to the fact that other peer banks’ chief risk officers earned substantially more in compensation than the chief risk officer at JPMorgan.
JPMorgan is still expected to report substantial profits for the second quarter of 2012, but the recent losses may bolster regulators’ attempts to re-write banking industry rules. (“JP Morgan Was Warned About Lax Risk Controls,” New York Times, June 3, 2012).