JPMorgan Chase: Dimon in the rough A BIG but digestible mistake by a financial institution with abundant profits and capital should normally be viewed as the market equivalent of an electric shock, a jolt that leads to smarter behaviour. The response to JPMorgan Chase's $2 billion (and rising) loss on a position taken by its chief investment office could not have been more highly charged. The loss has reinforced the political appeal of bashing banks, no matter what the facts. Barack Obama went on a TV chat show on May 14th and responded to questions about the loss by implying it would have been blocked under the Volcker rule banning proprietary trading. Given the proposed wording of the rule and the apparent nature of the trade, which seems to have started out as an attempt to hedge risk, that assertion is at best a stretch. Elizabeth Warren, a senatorial candidate in Massachusetts, also jumped on the bandwagon. "Wall Street isn't going to change its ways until Washington gets serious about strong oversight and real accountability," ran a campaign ad. Yet JPM is already among the most heavily regulated institutions in America, if not the world. Supervisors have employees climbing all over the bank; they routinely review its credit and business practices. Perhaps to pre-empt criticisms of inept oversight, a string of regulators has nonetheless announced investigations into the trade. Competing financial firms are at least as interested as regulators in understanding JPM's errors. At least one other large bank has begun an audit of its hedging exposures, mainly to convince regulators and shareholders that no similar situation is lurking. Others in the market want to profit from JPM's need to extract itself from the lossmaking trade. For just this reason, the bank has been cagey about which positions it holds, beyond saying that it involved a synthetic credit exposure. Other aspects of its response have been more visible. Several executives involved in the transaction have either abruptly decided to retire or been sacked. At the firm's annual shareholder meeting on May 15th, Jamie Dimon, the firm's hitherto unblemished boss, suggested their compensation may be subject to "clawback" provisions, addressing complaints that in the past bankers have been good at claiming profits while sticking losses to others. A special committee to resolve issues tied to the trade will be headed by Mike Cavanagh, a man tipped by some to be Mr Dimon's eventual successor. From a purely business perspective, the episode may one day be no more than an ugly footnote. JPM remains profitable (see chart). At its annual meeting, shareholders rejected an advisory motion to split Mr Dimon's dual role of chairman and chief executive. The bank's share price, down in the two days of trading after the disclosure on May 10th, rose marginally after the meeting. The regulatory ramifications could be much greater, not least because Mr Dimon's criticisms of heavy-handedness will now carry less force. Buried in all the indignation, however, are some neglected issues. One is the complexity of accounting rules. Banks hold some assets at market price, and some at historic cost. When he disclosed the $2 billion loss, Mr Dimon also announced a $1 billion realised gain and an $8 billion unrealised gain. That makes it hard to work out where JPM really stands. Another issue is the pressure that banks are under to make higher returns. It is hard to make money from safe assets when interest rates are so low, so lenders are tempted to take risks elsewhere. This is an issue for many lenders, but not one that will get a hearing.