Bloomberg reports that JPMorgan Chase engaged in high-risk proprietary trading under the guise of ordinary hedging, said Senate investigators, who urged U.S. regulators to strengthen the proposed ban on such trades known as the Volcker rule.
Regulators should require banks that hold federally insured deposits to explicitly link positions in derivatives to the underlying risk they are hedging, the Senate’s Permanent Subcommittee on Investigations recommended in a 300-page report released Thursday.
The issue of which trades are hedges and which are risky bets that could destabilize a bank is the crux of a stalemate over the Volcker rule, which was adopted as part of the 2010 Dodd-Frank Act designed to rein in systemic risks. The rule, which is in the final stage of drafting by five U.S. regulators, would restrict the kinds of trades permitted by banks holding deposits insured by taxpayers.
Banks have lobbied heavily against the Volcker rule, arguing that it will restrict market-making and other standard banking practices.
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