Add at least one of the Saint Leo University Core Values. Case Study 4, \"Discus

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Add at least one of the Saint Leo University Core Values. Case Study 4, "Discussion Case: Derivative Losses at JP Morgan Chase," at the end of Chapter 8.

JP Morgan Chase, the nation's largest bank, ignored external controls and manipulated documents as it racked up trading losses last year, while its influential chief executive, Jamie Dimon, briefly withheld some information from regulators. A new Senate report states JP Morgan has more assets than any other bank in the country and that it has lost a lot of money over the past six weeks. The loss won't sink the bank, not even close. But the loss does raise all kinds of questions about the regulation of banks, the value of trading instruments called derivatives, the size of the world's largest firms and the systemic risk they may pose to the financial system. This is not good news for investors who own long-term impact on the banking sector. But the loss, and the way JP Morgan handled it, has the potential to tarnish the reputation of the bank, and especially its CEO, who successfully steered the firm through the 2008 financial crisis.

Until the big banks understand that they have responsibilities to customers, employees, and other stakeholders beyond simply maximizing shareholder and senior management value, you can assume that business as usual will continue.

1- Does this case indicate that JPMorgan and the federal government were in acollaborative partnership or working at arm’s length? Why do you think so?

2- Were the regulations of derivatives trading legislated by Congress in 2010 anexample of economic or social regulations? What were the arguments in favor of and opposed tothese regulations?

Explanation / Answer

1. Does this case indicate that JPMorgan and the federal government were in a collaborative partnership or working at arms length? Why do you think so?

     In a collaborative partnership the government works closely with organizations in efforts to achieve a common objective that is mutually beneficial. Working at arm’s length is the opposite of a collaborative partnership due to the objectives of the organization and government being opposite, creating an adversarial relationship between them. In the case of JP Morgan and the federal government, they demonstrate working at arm’s length. The federal government imposed regulations that would extend government oversight in the trading of derivatives by implementing government rules that required trades involve intermediaries in public “clearing houses” so that regulators could closely inspect transaction (Lawrence, A. T., & Weber, J., 2014). JPMorgan opposed the idea of trading derivatives in public because it would potentially benefit rivals and compromise the profit of the bank (Lawrence, A. T., & Weber, J., 2014). The objectives of the federal government and JPMorgan do not align. The federal government wants to implement regulations that would work to restructure JPMorgan from being able to take excessive risks that would result in large bailouts being forced onto taxpayers who are already being affected by a destabilized economy. Despite the opposing objectives of JPMorgan, the Dodd Frank Act was implemented as a regulatory financial reform that would make bank’s take accountability by absorbing the losses. (Lawrence, A. T., & Weber, J., 2014).

    Core values are found in the federal governments actions to enforce regulations so that banks could no longer place big bets and expect taxpayers to suffer the consequences of large bailout. The regulations foster the core values of community, responsible stewardship, and integrity (Saint Leo University). The government demonstrates the core value of community by cultivating an environment where morally responsible leaders are assimilated through practices that demonstrate integrity and respect throughout the community, by imposing regulations that would require more transparency in efforts to eliminate trading practices that were not honest (Saint Leo University). The regulations were implemented even though JPMorgan challenged the rules of trading derivatives in public clearing houses where competitors could potentially compromise profits. The federal government committed to their mission by implementing a plan that would foster an environment where abundant resources could not be used to make excessive risks that could potentially harm the community. In this case, they deliver on their core values by putting the welfare of the community first instead of the potential profits of the bank.

2. Where the regulations of derivatives trading legislated by Congress in 2010 an example of economic or social regulation? What were the arguments in favor of and opposed to these regulations?

Public policy is implemented through the setting of direct or indirect regulations that work to solve economic and social issues (Lawrence, A. T., & Weber, J. 2014). The regulations of derivatives trading legislated by Congress is an example of economic regulations because it was aimed to modify normal operations of the free market along with supply and demand (Lawrence, A. T., & Weber, J. 2014). The Dodd-Frank Act, was illustrated to regulate the trading of derivatives through reformed measures that would revolutionize business practices. It required derivatives become more transparent through increased supervision and oversight of financial institutions such as JPMorgan.

    The arguments in favor of the governments regulatory reform in 2010 involves the provision of the Volker Rule that was added to the Dodd-Frank Act. Volker states “banks cannot trade derivatives for their own accounts” supporting the reform of financials institutions ability to trade derivatives privately (Lawrence, A. T., & Weber, J. 2014). The regulations were implemented by the government to eliminate conflicts of interest between consumers and the bankers. Congress supported derivatives being traded in public “clearing houses” to efficiently regulate trading practices through being able to closely monitor and control risks (Lawrence, A. T., & Weber, J. 2014). JPMorgan argued against regulations making trading practices public because it would allow clients to compare offerings decreasing profit. The Securities and Exchange Commission supported derivative trades being modified and wanted to impose specific laws to identify what constitutes as a hedge risks in a bank’s own portfolio. Bank lobbyist were opposed and arguing for the rule to have a broad interpretation.

    The arguments of government officials and JPMorgan decipher who supports deregulation and regulations. The government is looking to protect the investors with regulations that would decrease the chances of failure, causing further economic destruction and panics. The banking system supports deregulations through there opposing views that argue efficiency is accomplished through rules with loopholes allowing other to absorb the consequences of risks. Core values being implemented into trading practices would eliminate the need for governments to regulate. Organizations that are free from personal responsibility decrease decision making in the best interest of the public which is why regulations are imperative. Regulations that are correlated with the core values of integrity, respect, and responsibility work to effectively solve issue with a fair objective in this case (Saint Leo University).

    .

References

Lawrence, A. T., & Weber, J. (2014). Business and society: stakeholders,

    ethics, public policy (14th ed., international ed.). New York: McGraw-

Saint Leo University. (n.d.). Saint Leo University.

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