By: Michelle Patana
The Federal Reserve Board has been more willing to announce enforcement actions against large banks in recent months in an effort to rein in potentially abusive or negligent behavior. However, two recent actions taken against banking behemoth JPMorgan Chase has many bank consultants questioning how impactful these orders truly are, and whether they will have an influence on how financial institutions behave in the future.
The Fed made public two "cease and desist" orders against the bank, the first of which requires that JPMorgan?take corrective action to continue ongoing enhancements to its risk-management program and its finance and internal audit functions. The second order mandates that the bank?take corrective action to enhance its program for compliance with the Bank Secrecy Act and other anti-money laundering requirements.
The orders follow on the heels of the multi billion-dollar trading loss the bank experienced several months ago. While the public nature of these orders is designed to demonstrate that lawmakers are prepared to take action against financial institutions that engage in questionable or risky trading practices, some analysts argue that these enforcement actions fall short because they do not impose monetary or other impactful penalties.
"The content of both orders are really no more than what was required by law absent of this consent order - so this really is a slap on the wrist," Ann Graham, professor of law at the Hamline University School of Law and a former attorney at the Federal Deposit Insurance Corp. told American Banker. "It's not new news to the bank that it should have been doing these requirements all along."
Certain banks' internal policies and controls are still lacking
Following the unprecedented trading loss, regulators noted that the bank has maintained inadequate governance and oversight of its trading activities, which put the bank at serious risk for losses. Other financial institutions have been cited by a number of parties for engaging in the same risky trading methods, most recently Citigroup. In the latter months of 2012, a number of investors came forth and called for the break-up of the bank, noting that its risky activities did not ensure the best interest of its shareholders. As a new year begins and lawmakers have suggested their plans to revisit the Dodd-Frank Act, analysts say that the issue surrounding big banking trading strategies is likely to be discussed in the future.