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

And as with VaR and CRM, the CIO’s CSW10% model produced a lower risk profile for the
SCP than the bank’s standard approach. 1150
206
On March 30, 2012, eight days into the CIO’s CSW10% limit breach, the head of the QR
group, Mr. Venkatakrishnan, emailed Chief Risk Officer John Hogan, questioning the divergent
results of the two models, but also noting that risk was increasing under both:
“John: CIO’s 10% CSW by my group’s model estimate is long 245mm of risk;
their own models (run by Weiland) quote $145mm. I don’t understand the
difference in the models and don’t know how good a measure of risk 10%CSW is
for their book. But I spoke to Ashley and we agree that 10%CSW has been
trending up for CIO, by either their model or ours.” 1151
A few days later, on April 2, 2012, Mr. Venkatakrishnan announced that he had identified one
source of the discrepancy between the two versions of the CSW10% model: “One source of the
model difference is that the capital models operate at the level of individual names but the CIO’s
desk models operate at the level of indices---so the effect of name concentrations may be
captured differently.” 1152
When the Subcommittee asked the OCC about the two models, Michael Sullivan, the
OCC Deputy Comptroller for Risk Analysis, told the Subcommittee that the risk metric was a
straightforward measure of price movements in derivatives, and there was no legitimate reason
for a discrepancy in how the CSW10% metric was calculated. 1153
As with the VaR and CRM,
subsequent developments showed Mr. Venkatakrishnan’s model to be more accurate in
measuring risk.
At the same time the accuracy of the CSW10% metric was under scrutiny, the trend in its
movement was clear and should have been alarming. The graph reprinted below was developed
by JPMorgan Chase and included in a May 2012 presentation to provide bank managers with
background on the risk profile of the Synthetic Credit Portfolio. In the graph, losses increase as
the curve moves up the y-axis. 1154
1150 JPMorgan Chase did not have a standard CSW10% model that it applied bankwide, in the same sense as its VaR
model. Instead, the QR team had developed a CSW10% calculation as part of another model. Subcommittee
interview of C.S. Venkatakrishnan, JPMorgan Chase (10/25/2012).
1151 3/30/2012 email from C.S. Venkatakrishnan, JPMorgan Chase, to Oliver Vigneron, JPMorgan Chase, “CIO 10%
CSW,” OCC-SPI-00070715.
1152 4/2/2012 email from C.S. Venkatakrishnan, JPMorgan Chase, to John Hogan, JPMorgan Chase, and others,
“CIO DAY 1,” OCC-SPI-00070715.
1153 Subcommittee interview of Michael Sullivan, OCC (11/7/2012).
1154 5/3/2012 email from Irvin Goldman, CIO, to Douglas Braunstein, JPMorgan Chase, and others, “CSW 10%,”
with attached JPMorgan Chase presentation entitled “CIO Synthetic Credit: Risk background information for
upcoming meetings,” slide entitled “Risk metrics and limits: CIO limits structure,” JPM-CIO-PSI-H 0000546-556,
at 551.