US regulator under fire for JPMorgan oversight

A regulator criticised for its supervision of US banks before the financial crisis is facing fresh questions over its oversight of JPMorgan Chase's trading activities and its ability to enforce a planned ban on banks trading for their own accounts.

The Office of the Comptroller of the Currency, which oversees America's largest banks, pledged to take a more aggressive approach to regulation after being blamed for lax supervision in the run-up to the 2007-09 crash.

But the recent $2bn-plus trading loss incurred by JPMorgan has put the spotlight back on the OCC. "The OCC did not distinguish itself in the run-up to the financial crisis," says Sherrod Brown, a Democratic member of the Senate banking committee. The lawmaker says that he is "deeply troubled" by the OCC's oversight of JPMorgan's trades.

Thomas Curry, a longtime state bank regulator who took over the regulator last month, says: "I have heard the concerns and we intend to work very hard to demonstrate the OCC's commitment to clear and strong supervision."

A senior Obama administration official said Monday that he "assumes" regulators will make public their findings detailing "exactly what happened" at JPMorgan. The Federal Reserve, one of several regulators that has launched reviews of JPMorgan, did not respond to requests for comment. The Office of the Comptroller of the Currency said: "The OCC is prohibited from releasing, and commenting on, proprietary information related to the supervision of specific institutions."

Members of the Senate banking committee have questioned the judgment of top officials at the OCC after those regulators suggested that the lossmaking JPMorgan trades would have been legal under the planned ban on proprietary trading. The Volcker rule, the details of which are still being hammered out, is named after its creator, the former Federal Reserve chairman Paul Volcker.

Bob Corker, a Republican member of the Senate banking committee, says that an OCC staffer was "very adamant" that the trades "absolutely would be permitted activity under the Volcker rule" in a discussion about the JPMorgan trades.

Both Mr Brown and Jeff Merkley, a fellow Democrat on the Senate banking panel, praise Mr Curry and express optimism that he will change the OCC's culture. "I hope and really expect that Tom Curry will bring a whole different viewpoint and take seriously the role of regulation," Mr Merkley says.

Michael Brosnan, who oversees the OCC's London office where the JPMorgan trades occurred, was among the OCC officials who expressed the view that the lossmaking trades would have been permissible under the Volcker rule, according to people familiar with the matter. Mr Corker has called for a hearing into JPMorgan's trading losses.

The OCC declined to make Mr Brosnan available for comment.

In April, Douglas Braunstein, JPMorgan's chief financial officer, said that the bank's trades were "consistent with what we believe the ultimate outcome will be related to Volcker" and that the transactions were "fully transparent to the regulators".

However, JPMorgan executives in recent days have acknowledged that the bank's trades of credit derivatives may have violated the Volcker rule, had it been in effect.

The OCC last week disowned its staff's previous position. It said: "Previous positions attributed to OCC staff were based on incomplete details."

The OCC was criticised by the Financial Crisis Inquiry Commission, a panel created to investigate the roots of the credit crisis, for its allegedly poor oversight of the largest US banks in the run-up to the credit crunch.

According to Saule Omarova, a former special adviser for regulatory policy at the US Treasury, the OCC has long been seen as a lenient regulator. "The banking industry at some point convinced the OCC that it is always right," says Mr Omarova. "There's some sort of cultural and ideological capture at the OCC."

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