The scale of the surprise $2bn loss at JPMorgan Chase last week is accelerating plans by global regulators to force banks to improve their trading risk models – a move that could sharply push up costs and capital requirements for big banks worldwide.
While initial reactions to the JPMorgan loss focused on how it could reshape the US debate over implementing the Volcker rule ban on proprietary trading, the misstep by one of the world’s largest banks could have far broader consequences.
The Basel Committee on Banking Supervision, which sets global rules, has already sought a replacement for value at risk – the main measure of potential trading losses – and looked at additional capital requirements to cover potential damages not adequately measured by existing models.