Besent: JPMorgan and FT 'should be ashamed' about DFC report
TL;DR
A whistleblower accuses JPMorgan of misreporting risk to reduce capital reserves, potentially boosting annual income by $2 billion, violating Fed and Basel rules. JPMorgan defends its compliance, while critics warn of financial stability risks amid regulatory tensions.
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Besent: JPMorgan and FT 'should be ashamed' about DFC report
A whistleblower has accused JPMorgan Chase of systematically violating Federal Reserve and international banking standards by misreporting risk indicators to reduce required capital reserves, according to a 35-page letter sent to the bank's board audit committee. The former JPMorgan banker alleged the firm used a practice called "netting" to understate its systemic risk complexity, which allowed it to hold less capital and potentially generate an additional $2 billion in annual net income. This method, prohibited under Fed rules and the Basel Accord, effectively reduced the bank's capital surcharge—a buffer designed to protect against financial shocks.
The whistleblower claimed JPMorgan's approach, labeled "internal operational elimination," functionally mirrored netting and was implemented since 2016. They also stated internal concerns were raised in 2018 but were met with retaliation, culminating in their layoff in 2022. Federal Reserve rules require banks to report long and short positions separately, but the whistleblower argued JPMorgan's methodology obscured true risk exposure by offsetting these positions.
A JPMorgan spokesperson defended the bank's compliance with capital regulations, stating its methodology is "fully transparent to regulators." The Fed did not confirm or deny the whistleblower's claims but emphasized that U.S. banks hold higher capital surcharges than European counterparts. Critics, including former Treasury official Graham Steele, warned that lax enforcement of post-2008 reforms could erode financial stability, leaving banks vulnerable to future crises.
The case highlights broader tensions between regulators and banks over capital requirements, with industry groups arguing rules are overly burdensome. The Fed's revised "Basel Endgame" proposal, which reduced planned capital increases for large banks, has drawn criticism for potentially undermining global regulatory alignment.
