As Jamie Dimon’s term at JP Morgan comes to an end, the Federal Reserve Bank released two consent orders, both of which demand that JP Morgan enhance its risk management, and allow further oversight by its board of directors over its trading activities—a reprimand for the ruinous $2 billion losses incurred by JP Morgan’s CIO Bruno Iksil, aka ‘The London Whale’, last May. The huge bets by ‘Voldemort’ (another nickname by virtue of his power to overshadow Wall Street) once again put to rest the notion that the too-big-to-fail banks can regulate themselves. Still, the consent order does not really force the bank to do anything save for enhanced board oversight and is widely considered a slap on the wrist for JP Morgan. Although Jamie Dimon’s successor would find the board snooping over his shoulders rather cumbersome, it is undeniably a frail punishment. Compare this with prior dealings of US regulators with other banks, like HSBC’s money laundering problem—no doubt a far more serious offence, but it paid a fine of $1.9 billion for this. US-headquartered banks may be getting off a bit more lightly.
So, how else can we deal with the reckless trading of too-big-to-fail banks, which have implicit government guarantee? Besides enhanced oversight by the Fed and other central banks around the world, there is the Volcker’s Rule and the old idea of getting banks back to old-fashioned lending. But the latter is simplistic and almost impossible given the array of financial innovations. Volcker’s Rule to restrict proprietary