Financial Regulators Compete, JPMorgan Loses
By Kathleen Wailes & John Lovallo
The Federal Bureau of Investigation (FBI); the Federal Deposit Insurance Corporation (FDIC); the Commodity Futures Trading Commission (CFTC); the Securities and Exchange Commission (SEC); and the Office of the Comptroller of the Currency (OCC). Right now, no less than five federal agencies are investigating or considering enforcement actions against JPMorgan Chase for alleged improprieties ranging from flawed home loan reviews to prior knowledge of the Bernie Madoff Ponzi scheme. Before all is said and done, even more could enter the fray – including the newly formed Consumer Financial Protection Bureau (CFPB).
We’ve heard of piling on, but this is ridiculous.
In the wake of the 2008 financial crisis, the passage of Dodd-Frank, and the continued reputational issues impacting the financial services industry, it behooves banks, mortgage lenders, and other financial institutions to examine the factors driving such intense levels of scrutiny. It wasn’t long ago that JPMorgan Chase was a D.C. darling. Under the leadership of Chairman and CEO Jamie Dimon, the firm was seen as a prime example of “the way forward” in the post-crisis era. Its cooperative stance and willingness to reform helped strengthen regulator relationships. As a result, many in Washington D.C. saw the bank as a partner, rather than a target, in their efforts to clean up Wall Street.
So how did the relationship sour so quickly?
There are, of course, the alleged misdeeds themselves, none of which can be ignored by financial regulators that continue to come under fire for not doing enough to protect consumers. There is also the reportedly defiant tone that some bank executives have taken with their inquisitors, which is understandable to some in the industry; but only emphasizes the target on JPMorgan’s back.
There’s little doubt that these are the core issues at the heart of the matter. But as we dig deeper, we see another dynamic at play that might be just as impactful. It’s an unintended and somewhat unforeseen consequence of Dodd-Frank, or any significant restructuring of a regulatory regime in which there are multiple players with often overlapping jurisdictions and responsibilities.
Right now, federal regulators feel as if they have an elephant in their sights – and each one wants their own piece of the prize. Such inter-agency competition is nothing new. Turf wars come with the territory in Washington D.C. But in these early days of the Dodd-Frank era, the competitive instincts among financial regulators have intensified. This is the best chance they will have to stake their claims as leading authorities in the new regime – and bagging big game like JPMorgan Chase will go a long way in solidifying their desired positions moving forward.
That’s bad news for JPMorgan Chase, as each new development in multiple investigations presents new enforcement liabilities and does more damage to its brand, reputation, and bottom line. For others in the financial services arena who could find themselves in the midst of a similar regulatory onslaught, the lesson is clear: When one regulator comes knocking, expect more to follow.
Kathleen Wailes is a Senior Vice President at LEVICK, Chair of the firm’s Financial Communications Practice, and a contributing author to LEVICK Daily.
John Lovallo is a Senior Vice President at LEVICK, Chair of the firm’s Corporate and Reputation Practice, and a contributing author to LEVICK Daily.