Learning from JPMorgan's loss
It remains impossible to effectively manage risk inherent in opaque financial products
Those that refuse to learn from history are doomed to repeat it. JPMorgan Chase has been at the forefront of opposition to efforts to improve regulation of the financial services industry. Now, the firm has announced that it suffered a $2 billion (Dh7.34 billion) loss on a trade that was — ironically — supposed to protect it from financial losses. Further losses have not been ruled out.
JPMorgan emerged from the financial crisis relatively unscathed and was thought to have strong risk management procedures in place. The losses they have suffered prove once again that it remains almost impossible to effectively manage the risk inherent in increasingly opaque and complicated financial products. To reduce the risk to the global financial system and secure client funds, regulations need to be put in place that clearly separate the retail banking activities of the financial services group from their trading operations, among other initiatives.
JPMorgan will be able to absorb the loss and it is still expected to make a profit this quarter. But, there is rightly concern about what other dangers to the international financial system are lurking in the operations of key institutions. Until an effective and transparent international regulatory framework is in place, the authorities must keep their activities under close scrutiny.
