The Boston Globe

Business

JPMorgan regulators to be in spotlight

Comptroller’s office to face questioning

WASHINGTON — JPMorgan Chase’s regulators will be in the spotlight here on Wednesday, when they testify before Congress on the bank’s multibillion-dollar trading blunder and its implications for the future of Wall Street regulation.

One of the bank’s primary regulators, the Office of the Comptroller of the Currency, will face particular scrutiny for its oversight of the JPMorgan unit responsible for a trading loss of more than $2 billion.

JPMorgan disclosed the loss from its chief investment office last month. Just months earlier, top executives from the chief investment office had traveled to Washington to persuade the comptroller that new trading restrictions threatened the future of the bank. The executives argued that the so-called Volcker Rule could prevent the powerful unit from hedging risk throughout the bank.

“This is important to maintaining the safety and soundness of JPMorgan,” Ina R. Drew, then the head of the chief investment office, told comptroller officials, recalled one person who attended the meeting.

The trading blowup that followed has now become a flash point in the fierce debate over the Volcker Rule, which would ban banks from trading with their own money in an effort to prevent them from placing risky wagers while enjoying government backing.

In their testimony before the Senate Banking Committee, regulators are expected to defend their oversight of JPMorgan, which had significant sway with policy makers after emerging from the 2008 financial crisis relatively unscathed. None of the more than 100 regulators embedded in JPMorgan’s Manhattan headquarters kept daily watch over the chief investment office, people briefed on the matter have said, raising questions about gaps in oversight.

In testimony prepared for Wednesday’s hearing, the Comptroller of the Currency, Thomas J. Curry, said that his office ‘‘has been meeting daily with bank management’’ on its response to the trading loss and its risk management. As part of its review, he said the comptroller’s office would examine how employees in the chief investment office were paid and whether JPMorgan would try to claw back some of their compensation.

The committee will also hear from officials of the Federal Reserve, Treasury Department, and the Federal Deposit Insurance Corp.

The testimony from regulators, while significant, is only the opening act for a hotly anticipated hearing next week with JPMorgan’s chief executive, Jamie Dimon. Once considered Washington’s favorite banker, Dimon is also expected to testify before the House Financial Services Committee.

Federal investigators, meanwhile, are taking a closer look at JPMorgan’s trades. In the wake of announcing that it lost at least $2 billion on positions tied to complex credit derivatives, JPMorgan has received requests for documents and information from an array of federal investigators, according to people briefed on the matter. Federal authorities are examining, among other matters, JPMorgan’s accounting practices and whether the bank’s public disclosures played down the dire state of the trades.