not just concerning JPMorgan, who got off with a relative slap on the wrist with the usual settlements and slightly tighter restrictions. The Federal Reserve has, well, reserved the real brunt of their righteous anger for the overseers of Wall Street, the Empire State middle managers who were supposed to keep this thing from happening in the first place: the Federal Reserve Bank of New York.
As reported by Bloomberg, the Office of Inspector General for the Fed chastised the NY Fed bank for either not grasping the complexity of ultra-modern capitalism utilized by the investment banks, or just being ignorant of the billions being shuffled between them. Either way, the NY Fed was painted as an inefficient bureaucracy that proved to be no match for monitoring the supersize banks under their watch.
So does this mean the NY Fed is going to step up their game to prevent the grossly overleveraged trades from occurring that caused a debacle like the London Whale? Hardly. The NY Fed has been cited for their lackadaisical investigatory prowess for some time, with recent whistleblower Carmen Segarra gaining quite a bit of press for bringing light to the bank’s kid gloves treatment of Goldman Sachs ($GS).
Chastisement from the press Segarra, or the Federal Reserve won’t make the NY Fed any better equipped to dig into the multi-trillion behemoths that comprise the biggest investment banks in America. Their solution is to shift blame, saying that no regulator is equipped to handle banks that have grown as maddeningly complex as JPMorgan, Goldman, Citigroup ($C), and Morgan Stanley ($MS).
Their solution? Break them up. Perhaps seeing the writing on the wall, the day before the Fed’s watchdog report came out the head of the NY Fed William Dudley recommended that the biggest banks should be “dramatically downsized and simplified so they can be managed effectively.”
The Fed seems to agree, having met with the country’s biggest banks to explore new regulatory practices. However, it’s highly unlikely that such a breakup will be achieved with the bank’s cooperation. Then again, the banks have never been one to trade their ability to trade however they see fit with appeasing regulators who don’t even understand what they’re doing. The Fed has tacitly admitted they can’t manage banks like JPMorgan, and has threatened them with breakup.
But will that ever happen, really? The Wall Street Journal noted those in attendance at the Fed’s meeting said the tone was “collegial, almost a little too collegial.” The Fed might chastise the NY Fed, and admit breaking up the too-big-to-fails is the only real recourse. But for the time being, while the Fed squabbles, it’s going to be business as usual for JPMorgan. And while the London Whale is in the past there’s not much being done to stop one from happening again.