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Former FDIC Chair Sheila Bair on J.P. Morgan’s losses and the regulatory environment in the financial sector.
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-- the FDIC saying today that it will add additional staff to review JPMorgan and it's two billion dollar trading loss.
Well former FDIC chairwoman Sheila Bair just launched a brand new group called the systemic risk council.
Which aims to monitor the financial regulator she joins us now from Washington DC welcome chairwoman we appreciate you being here.
The first thing that comes to mind is so now we have to monitor the regulators because Brett they couldn't seem to get the job done an and I know you were listening when Jamie Dimon was.
A testify before the senate committee and they said how many regulators from the government our inside and he said hundreds.
So we had hundreds.
And they couldn't get it done how did they miss this.
Well I think -- -- a good question and I do think we need more explanations from the regulators because this is something is in the newspapers and you have thought at least at that point.
It would have focused them on the problems.
I will say though just I think larger -- question is the kinds of regulations we want.
And other regulatory forms are on track now are really this -- to impose greater market discipline.
On these large very large banks that -- shareholders and creditors.
Having more incentives to monitor risk and having more information -- monitor risk.
And that's really at the end of day more transparency -- -- market discipline we'll do a lot to enhance a risk taking have supervision of these institutions.
Your new organization is systemic risk council.
Begs the question of what you think about this particular tape and I'm sure -- read up on this trade.
-- that bad trade alone ever put the whole system.
Everest -- -- put the bank it -- and therefore the entire system or was it just an isolated incident as Jamie Dimon -- Sure I'm happy to respond to that my individual capacity -- surely be our new group is not -- weighing in on this specific issue.
From all the information and I have seen it looks like it was a very serious mistake -- she's acknowledged.
But no it was not anything there was systemic or the loss itself was not systemic nor would it threaten the viability of the institution.
I do think though that underscores some larger problems in the system.
One thing that troubles me the most I think about those you know highly.
Volatile unpredictable I trades that were occurring is that they were using insured deposits to do this.
There's not a lot of market discipline if you're just taking -- money that's guaranteed by the federal government.
She -- your your your market that's and that's why really this type of activity should be moved outside of banks.
Into separate -- days where these institutions have to go to the market and convince creditors that they need to put their money at risk if they -- to support this type of risk taking.
Because insured deposits really don't provide that type of market discipline.
That's what you need to have credentials supervision that's -- to make sure that only relatively safe understandable activities occur inside of insured bank.
And there -- ago because it tees it up perfectly for the Volcker Rule does it not that that is the big question now.
Is there any way because you know tomorrow when he testifies before the house financial services committee that the big question will really be.
-- the complexity.
Of Dodd-Frank.
In part to blame because Jamie -- somewhat hinted at that he -- that are perhaps he will suggest.
That it was Dodd-Frank to blame for this kind of thing that that was forced into some office of London is that an argument that he can make up with a straight face.
Well I haven't heard that in no I hope it doesn't make that argument because not angels have been finalized that's one of the problems and it could Dodd-Frank is a very long line very along very complex law I don't agree with everything that's -- Dodd-Frank.
But in the -- the day we need to have I think you know there are clear things that need to be done we need to constrain leverage we need better oversight of derivatives we need more market discipline on these banks.
We need to make sure that the government safety nets are not used for for speculative activity.
Now they're different ways to go about that I think OK and the council itself on the -- -- -- said the rule will needs to be simplified the most importantly just used to be resolved because along the longer this you know who is up for the year.
The uncertainty -- self hinders.
The operation of these banks and and the -- that surrounds our financial system and investors investing in these institutions.
So one resolve it into yes simplify that is goes for lot of these different.
Chairwoman please if you could just bear with us for a second we have some breaking news we're gonna come right.
