1.How did JP Morgan find itself in this position? Develop a timeline of events from 2011 to the summer of 2012.
2011
Mid of year Net exposure in the SCP increased from $-4 billion notional to $42 billion
End of year Keep increasing to $51 billion;
Also CIO produce $400 million in revenues from the bankruptcy of American Airlines.
Close of year Senior bank management mandated the CIO to reduce exposure in their portfolio
2012
January The team started reducing their Risk Weighted Asset exposures as mandated, they took daily losses on the portfolio. The portfolio was left exposed to the AA bankruptcy event because in an effort to reduce RWA, they had not increased the short side of the portfolio to offset the protection expired in Dec. The …show more content…
Thus, risk management should be active on monitoring any abnormal signal of the market. As in early 2011, JPM had monitored abnormal signal based on risk metrics, but neither VaR, CSBPV and CSW10% got CRO’s attention. To get things worse, CRO did not even receive report of these risk metrics, which is absolutely a failed internal management. To keep away from such scenario happen again, risk management should actively manage internal control and enforce reports to deliver properly.
The cause of the London whale is not a matter of organizational structure. On the contrary, this is a risk of excessive risk management without the implementation of the problem. This problem may be lost at different levels of management. Therefore, strengthening internal controls may help JPM.
6.As head of a large international organization (chose an industry you are familiar with) describe the lessons you would take away and the steps you would take to prevent a similar occurrence in your company. Ask yourself, what is the “once in a 100 years” event that keeps senior management in your industry awake at night? What obstacles would have to be overcome given the firm’s organizational structure?
If I am the head of the world's gold mining company Barrick Gold Corporation, I will study the following courses to keep my company away from this
2011
Mid of year Net exposure in the SCP increased from $-4 billion notional to $42 billion
End of year Keep increasing to $51 billion;
Also CIO produce $400 million in revenues from the bankruptcy of American Airlines.
Close of year Senior bank management mandated the CIO to reduce exposure in their portfolio
2012
January The team started reducing their Risk Weighted Asset exposures as mandated, they took daily losses on the portfolio. The portfolio was left exposed to the AA bankruptcy event because in an effort to reduce RWA, they had not increased the short side of the portfolio to offset the protection expired in Dec. The …show more content…
Thus, risk management should be active on monitoring any abnormal signal of the market. As in early 2011, JPM had monitored abnormal signal based on risk metrics, but neither VaR, CSBPV and CSW10% got CRO’s attention. To get things worse, CRO did not even receive report of these risk metrics, which is absolutely a failed internal management. To keep away from such scenario happen again, risk management should actively manage internal control and enforce reports to deliver properly.
The cause of the London whale is not a matter of organizational structure. On the contrary, this is a risk of excessive risk management without the implementation of the problem. This problem may be lost at different levels of management. Therefore, strengthening internal controls may help JPM.
6.As head of a large international organization (chose an industry you are familiar with) describe the lessons you would take away and the steps you would take to prevent a similar occurrence in your company. Ask yourself, what is the “once in a 100 years” event that keeps senior management in your industry awake at night? What obstacles would have to be overcome given the firm’s organizational structure?
If I am the head of the world's gold mining company Barrick Gold Corporation, I will study the following courses to keep my company away from this