JP Morgan's Jamie Dimon confirms that requiring banks to provide ultra transparency would end their taking proprietary bets

Thanks to the US Senate panel investigation lead by Senator Carl Levin we have confirmation that requiring banks to provide ultra transparency and disclose on an ongoing basis their current global asset, liability and off-balance sheet exposures would be more effective than the Volcker Rule and end banks taking proprietary bets.

As discussed by Heidi Moore in her Guardian column,

Senator Levin asked a bank regulator with the OCC what had happened, how the regulator stopped getting information. 

The regulator said JP Morgan had stopped sending daily reports in August 2011. 

The OCC objected, and met with Dimon as well as CFO Doug Braunstein. 

At this meeting, the regulator said, Dimon said the bank was afraid of leaks, and that it was changing how it was distributing its information.

There is a reason that a bank is afraid of leaks.

If the market knows what your position is, it will trade against you to minimize the profitability and maximize the loss of the proprietary bet.

Equally importantly, if the market knows what your position is, it can see how risky your bank really is.  As a result, investors will charge more to provide funds.  This further minimizes the profitability and maximizes the loss from taking a proprietary bet.

The reason that a bank is afraid of leaks of its proprietary bets is precisely the reason that requiring banks to provide ultra transparency ends their taking proprietary bets.

Mr. Dimon confirms this and in doing so confirms that your humble blogger's version of the Volcker Rule should be adopted by the financial regulators.

Regular readers will recall that my version of the Volcker Rule is two paragraphs long.  Paragraph one says that banks are prohibited from taking proprietary bets.  Paragraph two says that to enforce this prohibition banks must provide ultra transparency.

Dimon allegedly hammered the OCC regulator on why he needed the information – which, at that time, was standard and expected information for the regulator to have. 

"As Mr Dimon said: why we weren't going to get it?" the regulator recalled. Braunstein said he had already sent the reports. Dimon turned on Braunstein, the regulator remembered. "Mr Dimon said it was his decision whether to send the reports to the OCC." 

"Did he raise his voice?" Levin asked. 

"He did," the regulator replied. 

This moment was damning, as damning as Ina Drew's moment of truth earlier. It showed the pattern of bullying that JP Morgan showed towards its own regulator, and that Dimon himself had a hand in it. He prevented a bank regulator from getting necessary information, and, according to the testimony, personally kept that information out of the regulator's hands in August 2011.

This moment also confirms for all time why banks must be required to provide ultra transparency.  It simply is not an option to let bankers only disclose the information that they want when they want.

Levin also pointed out that the bank misinformed the OCC on losses – at times, telling the regulator that the bank was losing only $580m on the risky trades when JP Morgan's own internal numbers showed a loss of $1.2bn. 

It was compounded because since last year, Dimon and Braunstein had both said the bank's regulators were fully informed – which, as we now know, they were not.

Regular readers of this blog know that our financial system only works properly when market participants are fully informed.

The only way to insure that market participants are fully informed about banks is to require ultra transparency.

Mr. Dimon will not object to do so.  After all, JP Morgan did it himself as he knew it was the sign of a bank that could stand on its own two feet.

Can the same be said of Mr. Dimon's JP Morgan?