WASHINGTON--The Federal Reserve Bank of New York failed to
examine J.P. Morgan Chase & Co.'s investment unit ahead of the
bank's 2012 "London Whale" trading debacle, despite a
recommendation from other Fed supervisors that they look at the
unit involved in the trades, according to a new report.
The Fed's Office of Inspector General released a report Tuesday
saying Fed supervisors didn't follow up on signs that the bank's
chief investment office--where the traders engaging in the
problematic derivatives transactions were based--needed a closer
look. A team of experts from across the Fed system recommended that
the New York Fed conduct "a full-scope examination" of the unit in
2009, but the New York Fed never did so, the report said.
In 2012, J.P. Morgan announced losses in the unit related to
botched derivatives trades that eventually cost the bank $6
billion.
The inspector general found that the New York Fed had weaknesses
in its supervisory planning process, and that it depended on
certain people for expertise about the J.P. Morgan unit, but that
expertise was lost when the regulator reorganized its team
overseeing the bank in 2011.
J.P. Morgan declined to comment. The New York Fed told the
inspector general it is "committed to improving supervision,"
according to the report.
Write to Ryan Tracy at ryan.tracy@wsj.com
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