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Fin 355

In: Business and Management

Submitted By csuqingyue
Words 510
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In May 2012, JP Morgan's trading loss should send shudders down the spine of shareholders, management and regulators. Jamie Dimon, CEO of JP Morgan, says it was the chief investment office (CIO) that should responsible for a $2 billion loss. He claims that the reason of loss is because CIO ignore the risks or don’t realize the risks associated with the positions in the investment.

Based the failure investment and after reading the whole background of the case, I think JP Morgan should make some changes in their internal board arrangement. In other worlds, JP Morgan should increase the considerable power for CEO and CRO should be empowered to oversee risks. Increasing expertise to know what risk management details are is necessary; after all, risk management needs to run deep.

The direct reason for JP Morgan’s loss is taking exceptionally large positions in credit default swaps (CDS); this phenomenon is also called “London Whale”. Therefore, we can find the director’s role in enterprise-wide risk is absolutely important. Director should responsible for enterprise risk management, identify potential risks and manage risk within the risk appetite and protect their shareholder’s value. These responsibilities can also involved fiduciary part, be loyalty and care their clients’ interest is needed. However, JP Morgan’s director is not sufficient responsible for their duty, internal board arrangement need to be changed and improved.

The performance of JP Morgan’s risk management history is pretty good, JP Morgan’s strength is evaluating risks, they formalized and popularized the VaR (value-at –risk) method, and again increasing their leadership role by developing new software to reduce speed on assessing risks. However, Dimon’s management is not works, I think it can correlate with unregulated financial instrument and insufficient power by CEO. He even was distant…...

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