Somewhere Nick Leeson is having a good laugh. In 1995, Leeson destroyed Barings Bank by exceeding the firm’s trading limits and hiding his losses. Leeson’s trades cost the firm $1.4 billion and forced the 232 year old Barings into bankruptcy.
JPMorgan apparently employed the same dark arts in the losing trades of London Whale, Bruno Iksil. According to the U.S. Senate Permanent Subcommittee on Investigations, the traders at JP Morgan “routinely” exceeded the firm’s trading limits and covered up losses.
Moreover, the Whale’s $6 billion of trading losses at JPMorgan make Leeson look like a piker.
JPMorgan was spared Barings fate due to its size. With assets of over of over $2 trillion and Tier 1 capital of $140 billion, JPMorgan is one of the largest banks on the planet.
As one of the few financial institutions to survive the 2008 credit crisis relatively unscathed, JPMorgan had a reputation for superlative risk management.
The loss has reignited the debate over the Volker Rule. The rule was designed to prohibit commercial banks from speculative trading while allowing them to hedge against possible loan losses. It has also rejuvenated initiatives to limit the systemic impact of large financial institutions which are considered ‘Too Big To Fail.’