JPMorgan Chase London Whale D: Risk Management Practices

Yale Program on Financial Stability Case Study 2014-2D-V1

10 Pages Posted: 18 Mar 2015

See all articles by Arwin G Zeissler

Arwin G Zeissler

Yale University - Yale Program on Financial Stability

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Date Written: December 1, 2014

Abstract

JPMorgan Chase (JPM) prided itself on having the best risk management practices in the financial industry, having survived the 2007-2009 financial crisis in better shape than many competitors. Chief Executive Officer Jamie Dimon often spoke of the bank’s “fortress balance sheet”. A keen focus on risk management is vital to JPM’s longevity, as is the case with all highly leveraged financial institutions. However, the JPM Task Force that investigated the $6 billion 2012 London Whale trading loss concluded that risk management practices at the bank’s Chief Investment Office (CIO), the unit in which the loss occurred, were given less scrutiny by senior management than those of the bank’s client-facing businesses, despite the fact that the Chief Investment Office managed $350 billion in assets, an amount almost double JPM’s total stockholders’ equity at December 31, 2011. 

Keywords: Systemic Risk, Financial Crises, Financial Regulation

JEL Classification: G01, G28

Suggested Citation

Zeissler, Arwin G and Metrick, Andrew, JPMorgan Chase London Whale D: Risk Management Practices (December 1, 2014). Yale Program on Financial Stability Case Study 2014-2D-V1. Available at SSRN: https://ssrn.com/abstract=2577857 or http://dx.doi.org/10.2139/ssrn.2577857

Arwin G Zeissler

Yale University - Yale Program on Financial Stability ( email )

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

Andrew Metrick (Contact Author)

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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