JPMorgan has cut nearly two-dozen people in a group responsible for preventing traders from making risky bets
- JPMorgan Chase has cut more than 20 people in a group responsible for preventing traders from making risky bets.
- Nearly two-dozen executive directors in the bank’s Model Risk Governance & Review Group were culled this month, according to people familiar with the matter.
- The group, which is in charge of overseeing and independently reviewing the firm’s risk and trading models, grew significantly following the bank’s 2012 “London Whale” trading debacle and ensuing sanctions from the Federal Reserve.
- The Fed last week lifted its enforcement action against the bank.
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JPMorgan Chase has let go of nearly two-dozen people in a group responsible for preventing the firm’s traders from taking too much risk — a team that grew significantly in the aftermath of the bank’s 2012 “London Whale” debacle.
More than 20 executive directors in the bank’s Model Risk Governance & Review Group were culled this month, according to people familiar with the matter. It wasn’t immediately clear whether the cuts extended to other levels of seniority, or whether more personnel changes in the division would follow.
The cuts had been in the works for a couple months and represent less than 5% of the group, the people said. Business Insider was unable to determine their cause.
A JPMorgan spokeswoman declined to comment.
The model-risk team, among other responsibilities, oversees and independently reviews the firm’s risk and trading models. It also develops internal models to measure counterparty risk and make sure the bank’s holding enough capital to meet regulatory risk requirements.
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The group had grown significantly over the past decade amid heightened regulatory scrutiny, according to people familiar with the firm’s thinking, which stemmed from industry-wide risk lapses during the financial crisis as well as JPMorgan’s “London Whale” trading fiasco in 2012.
Regulators cracked down on the bank after a UK-based credit derivatives trader incurred more than $6 billion in losses, earning the moniker “the London Whale.” In investigations that followed, the firm’s modeling and risk controls came under fire for deficiencies, and the Federal Reserveissued an enforcement action against the bank requiring it to bolster its model-risk department and beef up internal audits.
The number of staffers hired to validate and approve trader’s models skyrocketed in the aftermath. The role became such a hot hiring front that some traders were evenswitching over into the middle-office model validation roles a couple years back.
“One of the key instigators of that group growing was the London Whale scenario,” a source familiar with the bank said. “One of the key reasons it was allowed to happen was modeling deficiencies and poor modeling controls.”
The sanctions imposed by the Fedwere lifted last week.
Wall Street has largely faced a softer regulatory environment since President Donald Trump was elected in 2016, though rules governing the country’s largest banks have largely remained unchanged.
Executive directors, the level cuts were focused on, are considered middle management and in model-risk roles can earn in the neighborhood of $300,000 in total comp, industry experts said.
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