Richard Sharp, a member of the Bank of England’s Financial Policy Committee, said the so-called London Whale losses at JPMorgan Chase & Co. (JPM) illustrate the financial-stability risks posed by firms “too big to manage.”
JPMorgan’s report on the losses is “very chilling” in revealing how information “can get distorted” as it passes through management layers, Sharp said in a parliamentary testimony today in London. Money laundering in places such as Mexico at HSBC Holdings Plc and rogue trading at UBS AG are among other examples, he said.
“Risks aren’t understood where they need to be understood within the organization,” Sharp said. “That obviously begs a question how even the regulator can be on top of that if even the organization itself can’t be on top of that risk?”...
“I worry that the auditors are ill-equipped,” Sharp said. “The JPMorgan experience indicates that even the executives were ill-equipped to see what was in a multi-trillion dollar portfolio.”