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JPMorgan’s $2 billion trading loss brings efficacy of the Volcker Rule to light

Regulators wonder if they need to tighten their control of banks

As we all have probably already heard, last Thursday JPMorgan Chase lost $2 billion in trading, leaving the financial world reeling and many wondering if the Volcker Rule will have any effect at all.

The Volcker Rule, a subsection of the Dodd-Frank Wall Street Reform and Consumer Protection Act, was intended to keep banks from making risky investments and trades by forbidding them to make bets with their own money. Thanks to the lobbying of Sen. Scott Brown (R-Mass), the rule does allow a little wiggle room—banks are allowed to put 3 percent of their capital in hedge funds and private-equity investments. A final version of the rule is expected to be released in the next few months, but in light of JPMorgan’s disaster, regulators are wondering if banks need to be controlled more tightly.

Ironically, JPMorgan has been one of the bill’s biggest detractors, the New York Times reports, with executives claiming the Volcker Rule would be a costly burden for banks. But as Marketplace’s Heidi Moore puts it: “If JPMorgan—the alleged smartest guys in the room—could take a bet this big, this stupid, and lose it then what are other banks also up to?”

Read more at The Billfold.

Contributing Author

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