JPMorgan Chase for years understated the risk it posed to the financial system, according to a whistleblower who claimed that America’s largest bank made billions of dollars by violating rules established to protect the global economy from crisis.
In a 35-page letter sent to JPMorgan Chase’s board audit committee, the whistleblower, a former JPMorgan Chase banker, alleged the firm “misrepresented” several indicators used to assess its complexity by the Federal Reserve by engaging in a process called “netting,” which is prohibited under Fed rules and international standards. This practice made the bank appear less complex, allowing the firm to hold less capital in reserve — in effect eroding the financial buffer meant to protect against future shocks.
Though the practice violates international standards, the Federal Reserve allowed JPMorgan Chase and other large U.S. banks to continue it, according to another banker familiar with the matter.
Sen. Elizabeth Warren, the top Democrat on the Senate Banking Committee, said she was deeply concerned that the Federal Reserve “may be turning a blind eye as JPMorgan and other Wall Street banks cook their books and skim off of funds meant to prevent a global economic collapse.”
“Inconsistent and lax bank supervision has crashed our economy before,” she told the International Consortium of Investigative Journalists and The Bureau of Investigative Journalism.
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