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

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have in the IB [Investment Bank] – we will do this for all of CIO over coming
weeks and I will keep you posted on that.” 1184
Concentration limits are such a well-known, fundamental risk tool, that their absence at the CIO
is one more inexplicable risk failure.
D. Responding to the Risk Limit Failures
In the aftermath of the Synthetic Credit Portfolio losses, the OCC conducted an
examination of the CIO’s risk management practices. On November 6, 2012, the OCC sent
JPMorgan Chase a Supervisory Letter outlining the shortcomings in CIO risk management that
led to the losses. The OCC wrote:
“Management oversight of CIO was inadequate. Business management was
allowed to operate with little effective challenge from either the board or
executive management. Risk reports did not communicate the nature of risk or
the pace of change in positions, and limits were inadequate for the risks. CIO
management did not understand the magnitude of the risk and dismissed outside
questions about the book. Senior management permitted CIO to operate under
less stringent controls than permitted analogous activities in other parts of the
bank. As a result, management allowed CIO synthetic credit desk to operate in an
unsafe and unsound manner.”
“CIO Risk Management was ineffective and irrelevant. Independent risk
management lacked the requisite staffing and stature to effectively oversee the
synthetic credit desk. Processes were inadequate for the nature of the risks, and
the limit structure was insufficient and not effectively enforced.” 1185
In total, the OCC identified 20 Matters Requiring Attention (MRAs) which, among other steps,
required the bank to address risk, valuation, and model failures, among other problems. 1186
JPMorgan Chase did not dispute the November 6, 2012, OCC Supervisory Letter’s
findings or recommendations. Instead, in response, the bank outlined the risk management
changes it had implemented or was planning to implement. 1187
1184
4/13/2012 email from John Hogan, JPMorgan Chase, to Jamie Dimon, JPMorgan Chase, “CIO,” JPM-CIO-PSI
0001753.
1185
11/6/2012 OCC Supervisory Letter to JPMorgan Chase, “Examination of VaR Model Risk Management,” PSI-
OCC-17-000015.
1186
See 8/14/2012 OCC Supervisory Letter, JPM-2012-37, PSI-OCC-17-000001 [Sealed Exhibit]; 8/31/2012 OCC
Supervisory Letter, JPM-2012-40, PSI-OCC-17-000005 [Sealed Exhibit]; 11/6/2012 OCC Supervisory Letter,
JPM-2012-52, PSI-OCC-17-000015 [Sealed Exhibit]; 11/6/2012 OCC Supervisory Letter, JPM-2012-53, PSI-
OCC-17-000019 [Sealed Exhibit]; 11/27/2012 OCC Supervisory Letter, JPM-2012-59, PSI-OCC-17-000025
[Sealed Exhibit]; 12/12/2012 OCC Supervisory Letter, JPM-2012-66, PSI-OCC-18-000001 [Sealed Exhibit].
1187
12/4/2012 letter from JPMorgan Chase to OCC, “Chief Investment Office Risk Management Review,” PSI-
OCC-000029.