THE SCENE WAS REMINISCENT OF THE DARK DAYS OF the financial crisis. A senior banker was called before Congress and asked to explain how his bank had lost billions of dollars making highly leveraged bets. But this wasn't October 2008. It was June 13, 2012, nearly two years after President Barack Obama had signed into law the most sweeping set of financial reforms since 1933, and the man called to testify was America's premier banker, Jamie Dimon.
During the market meltdown that brought the financial services industry to its knees and triggered a global recession, JPMorgan Chase & Co. emerged as the most credible, and creditworthy, of the major U.S. banks. The feds turned to JPMorgan to rescue Bear Stearns Cos., the first major casualty of the crisis. Dimon, the CEO with the fortress balance sheet and no-nonsense style, became the respectable voice of the financial services industry and led a pushback against tighter regulation, calling in particular for a lenient application of the so-called Volcker rule's curbs on proprietary risk-taking at banks.
Then early this year Bruno Iksil, a London trader working in JPMorgan's chief investment office, amassed a major position in an obscure credit derivatives index, purportedly to hedge risk across the bank. By April some hedge funds had begun betting against the so-called London Whale, and speculation mounted that Iksil's trades were losing money. Dimon, who initially dismissed the market chatter as "a tempest in a teacup," acknowledged one month later that JPMorgan would lose at least $2 billion on the trades, and he replaced the head of the bank's chief investment office. By July the loss had surged to $5.8 billion, and it could still grow. ....