Add 4,281 Hedge Fund Clients to What Makes JPMorgan Chase the Riskiest Mega Bank in the U.S.

[Gunnar Larson]

By Pam Martens and Russ Martens: January 30, 2023 ~


Jamie Dimon Sits in Front of Trading Monitor in his Office (Source — 60
Minutes Interview, November 10, 2019)

According to a Yale School of Management study, in 2013 JPMorgan Chase had
1,339 hedge fund clients. As of July of last year, that number had soared
to 4,281 according to the annual Convergence Inc. study.

While Goldman Sachs and Morgan Stanley topped the total number of hedge
fund clients (with 5,150 and 4,964, respectively) JPMorgan Chase ranked
number one in terms of hedge fund Assets Under Advisement (AUA). (See
Convergence Inc. study linked above.)

There’s a big problem here that federal bank regulators are choosing to
ignore at the peril of the U.S. financial system.

JPMorgan Chase, unlike Goldman Sachs and Morgan Stanley, is the largest
federally insured, taxpayer backstopped, depository bank in the United
States with more than $2.47 trillion in deposits as of June 30, 2022.
Unfortunately, as a result of the repeal of the Glass-Steagall Act in 1999,
this mom and pop depository bank with more than 5,000 Chase bank branches
spread across the United States, is also allowed to make wild trading
gambles. Those trading gambles have resulted in felony charges by the U.S.
Department of Justice for rigging the foreign exchange markets, the U.S.
Treasury market and the precious metals markets.

Even without the dramatic growth of its risky hedge fund business, JPMorgan
Chase already ranked as the riskiest bank in the U.S. The data comes from
the National Information Center, a repository of bank data collected by the
Federal Reserve. The National Information Center is part of the Federal
Financial Institutions Examination Council (FFIEC), which was created under
federal legislation and imposes uniformity in how U.S. financial
institutions are examined by federal banking regulators.

The National Information Center creates an annual profile of banks,
measured by 12 systemic risk indicators. The data used to create these
graphics come from the “Systemic Risk Report” or form FR Y-15 that banks
are required to file with the Federal Reserve. To measure the systemic risk
that a particular bank poses to the stability of the U.S. financial system,
the data is broken down into five categories of system risk: size,
interconnectedness, substitutability, complexity, and cross-jurisdictional
activity. Those measurements consist of 12 pieces of financial information
that banks are required to provide on their Y-15 forms.

The data for the period ending December 31, 2020 showed that in 8 out of 12
measurements – or two-thirds of all systemic risk measurements – JPMorgan
Chase ranked at the top for having the riskiest footprint among its peer
banks.

One of the 12 financial metrics is based on the Intra-Financial System
Liabilities of each bank. This shows how much money a particular bank has
at risk at other banks by using inputs such as how much of its funds it has
on deposit with, or has been lent to, other financial institutions; the
unused portion of any credit lines it has committed to other financial
institutions; and its holdings of debt, equity, commercial paper, etc. of
other financial institutions. The idea is to understand the
interconnectivity of systemically-risky megabanks and whether one
distressed megabank could cause a daisy-chain of contagion with other
megabanks — such as the contagion caused by Citigroup and Lehman Brothers
during and after the financial crisis of 2008.

JPMorgan Chase’s footprint for Intra-Financial System Liabilities is very
large. The 2020 data show that JPMorgan Chase has $577 billion exposure in
that category. That’s an increase of $182 billion over what it showed in
that category in 2019 – an increase of 46 percent in one year.

The Chairman and CEO of JPMorgan Chase, Jamie Dimon, likes to perpetually
brag about the bank’s “fortress balance sheet.” Unfortunately, that
bragging isn’t supported by the bank’s felony history or the fact that the
bank lost $6.2 billion gambling in exotic derivatives in London during the
leadership tenure of Dimon: the so-called “London Whale” scandal.

Then there is also the fact that the Federal Reserve has yet to explain why
a unit of JPMorgan Chase (J.P. Morgan Securities) needed to secretly borrow
a cumulative $2.59 trillion in emergency repo loans from the Fed in the
last quarter of 2019 – long before the first case of COVID-19 appeared in
the U.S. (See chart below.)

Perhaps it’s time for the Senate Banking Committee to take a long, hard
look at what’s really under the hood of this banking behemoth.



Related Article:

Archegos: Wall Street Was Effectively Giving 85 Percent Margin Loans on
Concentrated Stock Positions – Thwarting the Fed’s Reg T and Its Own Margin
Rules
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