Jpmorgan Chase Essay examples

2351 Words Dec 21st, 2015 10 Pages
JPMorgan Chase

I. Abstract

The credit derivatives were introduced in the early 1990s, as large derivatives dealer searched for ways to transfer risk in financial markets. Although the financial innovations have only been used for decades, activity in credit derivations has grown rapidly. According to the Bank for International Settlement, the credit derivatives market reaches $21 trillion in 2014, and the main players for credit derivatives are investment banks, corporations or insurance companies. (Bank for International Settlement, 2014) Credit derivatives are relatively complex financial instrument, since it utilizes the leverage technique to mitigate the credit risk. One the one hand, credit derivatives allow banks to mitigate
…show more content…
One of the largest losses in derivatives transactions was the London Whale trade. The London Whale trades were the series large size credit derivatives conducted by the investment giant, JPMorgan Chase. In early 2012, the bank’s Chief Investment Office (CIO), which was charged with managing $350 billion in excess deposits, placed a massive bet on a complex set of synthetic credit derivatives. And the risky investment finally resulted in a loss of $6.3 billion.

The magnitude of the losses shocked the investing public and drew attention to the CIO which was found to be bankrolling high risk credit derivative trades that were unknown to its regulators. The scandal demonstrated the failure in internal risk management in a reputational bank. Although the corporate governance failed to detect earlier, the internal management intentionally concealed the fact to regulators who should account for the disaster. The lack of proper risk management plan, the bank resulted in taking excessive risk, which led itself to catastrophic consequence. The core risk was the operational risk in the case of London Whale trade, the bank failed to detect the significant risks within the dangerous investments and made the proper risk treatment plan. Besides, the senior management made unwise decision posed serious strategic risk. Moreover, the bank concealed the fact that exposed the risk of compliance.

II. Core Risk Principal in

Related Documents