A Stunning Conflict of Interest: Why JPMorgan’s Dimon Needs to Leave the New York Fed Board

May 24, 2012

by Jeremy Leaming

JPMorgan Chase CEO Jamie Dimon has been a loud, at times obnoxious, critic of serious efforts to strengthen regulations of the financial industry. Specifically he has fought the Volcker rule, which would bar federally insured banks from risky trading ventures, similar to the ones that Dimon’s bank engaged in that led to a multi-billion dollar loss.

Dimon is also on the board of the Federal Reserve Bank of New York, which is instrumental in supervising and regulating financial institutions. A growing number of people, including Treasury Secretary Timothy Geithner, are suggesting that Dimon is unfit to serve on the board of an institution that is charged with checking the actions of JPMorgan, which as The New York Times has noted emerged from the Great Recession as “the nation’s biggest bank.”  

Simon Johnson, former chief economist of the International Monetary Fund, is the latest influential voice to call for Dimon to go.

Writing for The Baseline Scenario, Johnson noting that the NY Fed is a “key part of our regulatory and supervisory apparatus,” concludes that it makes no sense for Dimon to remain a part of the apparatus that “oversees his activities, decisions, and potential losses.” Johnson is asking others to join the effort urging Dimon to resign from the board.

The JPMorgan debacle centers on a trader in London dubbed the “London Whale,” apparently for playing a central role in a risky hedging strategy that led to the announcement of a $2 billion, likely far higher, trading loss.

In a post for his Rolling Stone blog, Matt Taibbi says, “If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.”

The Daily Agenda notes a recent report from The Wall Street Journal that Dimon approved the “concept” behind the risky trades but failed to “monitor how they were executed.”

Johnson also cites Dimon’s apparent oversight failure noting that “the most sympathetic accounts portray Mr. Dimon as out of touch with large parts of business. There are also press reports that one or more of Mr. Dimon’s hand-picked executives failed to understand and report on risks that became greatly magnified and quickly go out of control.”

Remaining on the New York Federal Reserve board, Johnson says, represents a glaring conflict of interest that would not be tolerated in “other parts of American society” and should not be overlooked “in this instance.” 

[image via Wikimedia Commons]