WASHINGTON — Two US market regulators confirmed Tuesday they were investigating JPMorgan Chase’s $2 billion-plus trading loss in derivatives.
In a Senate hearing on systemic risk in the vast market for derivatives, Gary Gensler, chairman of the US Commodity Futures Trading Commission, said the CFTC was pursuing a preliminary investigation on JPMorgan’s transactions in derivatives based on credit default swaps.
Asked if the CFTC could have spotted the massive losses announced May 10 by JPMorgan, Gensler said his agency’s oversight was limited by budget restraints.
“We don’t have people on-site at any futures commission merchant. We don’t have people on-site at the clearinghouses,” he told the Senate banking committee.
“That’s just the reality of our funding and the decisions that have been made over decades in a bipartisan way.”
Mary Schapiro, the chairman of the US Securities and Exchange Commission, testifying at the same hearing, said her agency was looking into whether JPMorgan shareholders had been hurt by the way the losses were disclosed.
“Our best information is that the trading activities in question took place in the bank in London and perhaps in other affiliates, but not in the broker dealer that is directly supervised by the SEC,” she said.
“Although the commission does not discuss investigations publicly, I can say that in circumstances of this nature where the activity does not appear to have occurred in one of our regulated entities, the SEC would be primarily interested in and focused on the appropriateness and completeness” of the company’s reporting.
Both Schapiro and Gensler testified they had learned of JPMorgan’s massive transactions in its London office from press reports in April.
Another key regulator, the US Treasury’s Office of the Comptroller of the Currency, is also probing the losses.
Late Tuesday, the Treasury reported that the Financial Stability Oversight Council — composed of the CFTC, SEC, OCC and the Federal Reserve — held a preliminary briefing on the JPMorgan losses and other issues.
“Those regulators are still in the process of conducting their evaluation of what happened and why,” said Treasury spokesman Anthony Coley.
“That examination is an important input into the ongoing effort to design safeguards and reforms… so that mistakes in judgment at individual banks are less likely to threaten the broader financial system and economy,” he said.