— JPMorgan effect: Like other banks, JPMorgan supports giving the government the power to dismantle a failing bank. CEO Jamie Dimon said so clearly in an appearance on "Meet the Press" on Sunday. JPMorgan's loss probably doesn't affect the likelihood that regulators will break up a bank in the future. The loss wasn't nearly big enough to threaten JPMorgan with failure.
JPMorgan's bets involved complex investments known as derivatives whose value is based on the value of another investment. Before 2008, many derivatives were traded as individual contracts between banks and hedge funds, without any transparency for regulators. The financial overhaul sought to bring more derivatives onto regulated exchanges and force derivatives traders to put up more cash in case their bets turned against them.
— Battle lines: Overhauling the rules governing this market, estimated at $650 trillion, has proved as complex as the investments themselves. Banks support many parts of the overhaul but generally argue that forcing too much transparency would make it harder and more expensive for companies to use derivatives as a hedge against risk. They say it is an unnecessary cost that would be spread across all types of companies.
The agency most responsible for implementing these rules, the Commodity Futures Trading Commission, faces the threat of a much smaller budget than it says it needs to write the rules and increase its oversight of the derivatives market.
Advocates for stronger regulation argue that the new rules apply to the sorts of derivatives believed to have magnified the financial crisis — and JPMorgan's losses — but do not threaten investments like energy futures, for example, which airlines use to control fuel costs. They say banks are just trying to protect a lucrative business that other companies can't compete in today.
— State of play: About half the rules are done, but many crucial questions have yet to be decided. The rules will be phased in this fall through next spring. Banks are lobbying hard to protect their hold on this profitable business. Banks support pending legislation that would limit U.S. regulators' control over derivatives trades by their overseas affiliates.
— JPMorgan effect: Fairly or not, JPMorgan's big loss on derivatives trades is likely to revive scrutiny of that market. That could give advocates of tighter rules some juice in ongoing negotiations with regulators. It also could empower those who believe the budgets of the CFTC and Securities and Exchange Commission should be increased to reflect the need for broader oversight.
The overhaul calls on the Federal Reserve to oversee the biggest and most important financial companies and apply a stricter set of standards for financial fitness. For example, the companies must hold more capital as a buffer against future losses. Before, the biggest banks were overseen by a patchwork of regulations.
— Battle lines: Industry officials say they're working with regulators to fine-tune how big companies will be overseen. They are concerned, for example, about the extra costs imposed on the big companies to offset the extra risk they create in the financial system.
— State of play: Industry officials say many of these changes were happening behind the scenes even before the financial overhaul was passed in 2010. They say banks already are better capitalized and meet other standards laid out by regulators.
It's still not known exactly which financial companies will fall into this category. The biggest banks are included automatically. Regulators have more discretion when it comes to what are known as non-bank financial companies, such as huge insurance companies. Companies on the margin reportedly are lobbying hard to avoid this designation.
— JPMorgan effect: As the nation's biggest bank, JPMorgan automatically will face stricter oversight. The trading loss there is unlikely to affect detailed negotiations about how exactly such companies will be overseen.