Under ultra transparency, JP Morgan would have been required to disclose on an on-going basis its current, global asset, liability and off-balance sheet exposure details. With this disclosure, the OCC and every other market participant could have seen what JP Morgan was doing and exerted discipline to restrain the risk taking implied by the position.
bank regulators said a lack of disclosure by J.P. Morgan regarding risks it was taking hampered efforts to prevent the trading losses of more than $2 billion the bank disclosed last month.
Comptroller of the Currency Thomas Curry on Tuesday told the hearing that the regulator is probing the level of reporting provided by J.P. Morgan's Chief Investment Office, the unit responsible for the losses.
"In hindsight, if the reporting were more robust or granular, we believe we may have had an inkling of the size, the potential complexity, the risk of the position," Mr. Curry said. "What we're looking at on a prospective basis is to make sure there's a robustness to the reporting" and risk management, he said.
Mr. Curry acknowledged that the OCC only became concerned about J.P. Morgan's trading activities after news reports on the trades were published in early April.Please re-read the highlighted text as Mr. Curry makes the case for a) requiring banks to provide ultra transparency and b) why this ultra transparency needs to be made available to all market participants so that they can assist the regulators in exerting discipline on the banks' risk taking.
The Federal Reserve's general counsel, Scott Alvarez, said that J.P. Morgan's managers "didn't have a good handle" on information about the risks the bank was taking.
"We have to rely on the information that we get from the management of the organization," Mr. Alvarez said.
The comptroller's office has said it learned of "risk factors" from J.P. Morgan's derivatives traders in early April.Further confirmation of the need to require banks to provide ultra transparency.
The Wall Street Journal reported April 5 that a trader at J.P. Morgan, known as the "London Whale," made large bets on credit derivatives.
Rep. Spencer Bachus (R., Ala.) the panel's chairman, said the J.P. Morgan trades highlight weaknesses in the current structure of financial regulation, which he called excessively complicated.
"Sitting before us today are five different regulators, all of whom have some supervisory responsibility over these trades and several of whom have examiners embedded at J.P. Morgan, but none of whom, apparently, was either aware of the bank's hedging strategy or raised concerns about it," he said.Please re-read the highlighted text as Rep. Bachus makes the case for why banks need to provide ultra transparency and make it available to all market participants. The more eyes, the more chances that someone will see a problem and raise a warning.