JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

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analysis of its risk management structure, risk personnel, and why specific risk metrics in place
at the time of the trades were disregarded.
B. Risk Management Structure at CIO
JPMorgan Chase provides a broad overview of its risk management practices in its
Annual Report. The 2011 Annual Report describes risk management at the firm in the following
way:
“Risk Management operates independently of the lines of businesses to provide
oversight of firmwide risk management and controls, and is viewed as a partner in
achieving appropriate business objectives. Risk Management coordinates and
communicates with each line of business through the line of business risk
committees and chief risk officers to manage risk. The Risk Management
function is headed by the Firm’s Chief Risk Officer, who is a member of the
Firm’s Operating Committee and who reports to the Chief Executive Officer and
is accountable to the Board of Directors, primarily through the Board’s Risk
Policy Committee. The Chief Risk Officer is also a member of the line of
business risk committees. Within the Firm’s Risk Management function are units
responsible for credit risk, market risk, country risk, private equity risk and
operational risk, as well as risk reporting, risk policy and risk technology and
operations. Risk technology and operations is responsible for building the
information technology infrastructure used to monitor and manage risk.” 868
JPMorgan Chase maintained a number of bankwide risk limits as well as risk limits for
each major business unit. Bankwide risk limits were set by the bank’s CEO and CRO, 869 and
were regularly discussed with the Risk Policy Committee of the Board of Directors. 870 The
business unit risk limits were developed by each unit’s head and risk management personnel, 871
in consultation with the bank’s Chief Risk Officer. 872 The CIO’s limits depended on overall firm
risk appetite as well as its own mandate, which required a dialogue between the CIO and firm
managers. 873 Risk limits were a topic of discussion at the CIO’s annual “Business Review,” a
formal meeting attended by top executives of the bank and CIO. 874 The CIO’s 2012 Business
Review was held in February and attended by Mr. Dimon, Mr. Braunstein, Mr. Zubrow, and Mr.
Hogan, as well as Ms. Drew, Mr. Goldman, Mr. Macris, Ms. Tse, and Mr. Wilmot. 875
868
See 3/30/2012, “2011 Annual Report,” JPMorgan Chase publication, at 125,
http://files.shareholder.com/downloads/ONE/1839748086x0x556139/75b4bd59-02e7-4495-a84c-
06e0b19d6990/JPMC_2011_annual_report_complete.pdf.
869
3/2012 presentation prepared by JPMorgan Chase entitled “Market Risk Limits,” at 12, OCC-SPI-00117682.
870
Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012). See also 3/20/2012
Directors Risk Policy Committee meeting minutes for JPMorgan Chase, JPM-CIO-PSI-0013563.
871
3/2012 presentation prepared by JPMorgan Chase entitled “Market Risk Limits,” at 12, OCC-SPI-00117682.
872
Subcommittee interview of Peter Weiland, CIO (8/29/2012);
873
Subcommittee interview of Michael Cavanagh, JPMorgan Chase (12/12/2012).
874
Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012).
875
2/2012 presentation prepared by JPMorgan Chase entitled “CIO February 2012 Business review,” at 1, JPM-CIO-
PSI 0000224-267.