Man your battle stations: Washington’s war on Wall Street is about to start anew.
This time, though, Jamie Dimon, the banking sector’s shining star and self-appointed attack dog fighting regulation, has been neutered.
JPMorgan Chase’s $2.3 billion trading blunder has turned CEO Dimon from hero to villain — while handing DC lawmakers a battery of munitions for toughening regulations like the Volcker Rule.
“The argument that financial institutions do not need the new rules to help them avoid the irresponsible actions that led to the crisis of 2008 is at least $2 billion harder to make today,” Rep. Barney Frank (D-Mass.), co-author of the Dodd-Frank financial reform law, said yesterday.
“I think it’s going to bolster the case for people who think banks should be [more] heavily regulated,” said Alex Micic, a banking analyst at research firm Trepp Inc.
Up until Thursday’s bombshell from Dimon, banking sector lobbyists had been successfully beating back tough regulations even before they were written.
Wall Street’s offensive, led by Dimon, had frustrated lawmakers, who were pressing regulators in a pitched battle to see which side would carry the day.
It appeared the bankers had been winning.
But in the last 24 hours, DC power players seemed emboldened.
“The draft rules at this point are just way too lax,” said Sen. Jeff Merkley (D-Ore.), during a hastily arranged conference call with reporters to discuss Dimon’s stumble.
“[JPMorgan’s trading loss] is a textbook illustration of why we need a strong Volcker Rule firewall,” noted Merkley.
The controversial Volcker Rule would prohibit banks from making bets using their own money.
The loss of momentum for Wall Street comes at the worst possible time as regulators are crafting the language for new rules, and Washington politicians have been chastising regulators including the Federal Reserve Board and the Securities and Exchange Commission for possibly watering down rules.
Senate banking committee member Bob Corker (R-Tenn.) called for hearings to discuss JPMorgan’s trading loss.
SEC Chairman Mary Schapiro re-focused on banking regulation, too, saying her agency was monitoring the situation.
The rekindled regulatory war comes just a week after some of the biggest banks met at the Federal Reserve Bank of New York to pitch their case for loosening rules to Fed governor Daniel Tarullo.
“I think this trading issue is going to be used in the presidential campaign,” said outspoken bank analyst Dick Bove at Rochdale Securities.
“President Obama is going to say that this is why I have to regulate banks,” he added.
Investors bashed JPMorgan Chase shares yesterday, pushing them down by 9.3 percent to $36.96 at the close.