JPMorgan is embarrassed, but not endangered - Washington Post

But if you take a dispassionate look, you see that the bank isn't endangered. Embarrassed, yes. Endangered, no. JPM shareholders are taking a haircut — its stock is down 7 percent for the day as I send this to my editors — but taxpayers don't appear to be even remotely endangered. Dimon said yesterday that Morgan expects to post a profit in the current quarter, albeit one sharply below previous expectations. Even if the bank posts a loss for the quarter, its large capital base — $190 billion as of March 31 — can easily absorb it.

If the $2.3 trillion company isn't endangered, there's no chance that taxpayers will have to make good on the $608 billion of federally insured deposits that its bank subsidiaries held as of Dec. 31. If taxpayers aren't endangered because of the loss's small size relative to the bank's capital cushion, how does the loss prove the need for a Volcker Rule to protect taxpayers? Answer: It doesn't.

There's no question that incompetence and greed on the part of giant financial institutions, especially banks, brought on the financial crisis that almost sank the world in 2008-09. And that cost U.S. taxpayers dearly, in a variety of ways. But the hideous losses that exposed taxpayers to huge risks stemmed from institutions making bad loans and loading up on assets, especially mortgage-related assets, that proved to be toxic. The losses didn't come from money-losing speculative trades that banks made for their own accounts.

I'm all in favor of reining in banks that hold federally insured deposits. I opposed repealing Glass-Steagall, the Depression-era law that separated commercial banking involving insured deposits from investment banking, which is a much riskier business. But Congress, in its wisdom, repealed Glass-Steagall to allow Citibank and Travelers Insurance to combine, a merger that has since largely been undone because management of what became Citigroup had no idea how to run such a large and complex organization.

In an ideal world, we would unscramble this egg by forcing institutions to shrink until they were no longer too big to be allowed to fail. However, we're not going to do that — instead, we're trying to solve the problem by instituting new and more competent regulation than we've had.

The Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, is an example of the problem involved in regulating giant companies in a complex world. The principle sounds wonderful and simple — don't let banks use federally insured deposits for risky trades. But implementing it is proving to be incredibly difficult, as realists, including me, predicted would happen. Once bank lawyers finish finding loopholes in the detailed provisions, whatever they prove to be, the rule will probably have little meaningful impact.

So bash Morgan all you like for its trading losses, and feel free to snicker at the spectacle of Jamie Dimon losing his swagger and having to eat crow. But don't confuse Morgan's mess-up with the supposed need for the Volcker Rule. The Volcker Rule would have symbolic impact, by appearing to rein in Wall Street. But it will prove to be more useful as a full-employment act for loophole specialists than for reining in the banks.

Disclosure: I own about $1,400 of Morgan stock, an insignificant portion of my investable assets. It's the result of bank consolidations and decades of reinvested dividends. The holding stems from my purchase of one share of National Bank of Detroit about 40 years ago, when I was the Detroit Free Press's banking reporter and wanted guaranteed access to shareholder documents and the company's annual meeting.