Posted on 06/03/2010 12:12:46 PM PDT by unclebankster
JPMORGAN CHASE likes to refer to its balance sheet as a “fortress”. Unfortunately at least part of its supply of liquid funds may have been built using other people’s money. That is the conclusion reached by Britain's Financial Services Authority (FSA). It has fined J.P. Morgan Securities, an offshoot of the Wall Street banking giant, £33.3m ($48.5m) after concluding that clients’ funds from its futures and options business, that were meant to be ring-fenced, were in fact held as part of the general pool of funds within the firm. The sums involved were big, varying between $1.9 billion and $23 billion.
Segregating clients’ money from the firm’s own general funds is absolutely critical. Without it, customers cannot be sure that if a bank goes down they will get their money back. As a result, as soon as there seems the slightest risk that a firm is at risk of failing, they will start withdrawing funds rather than get involved in a complicated bankruptcy process. The failure of Lehman Brothers showed just how messy this could be, with many clients finding that big assets they owned, which Lehman administered, were trapped in the detritus of the firm and subject to the whims of bankruptcy administrators.
The importance of separating a financial firm’s money from its customers’ is now widely accepted. The FSA says that JPMorgan made an honest mistake, and reported itself to the regulator when it came to light. Still, if anything the episode is a reminder of just how hard it is to keep tabs on everything when you are running a firm with a $2,000-odd billion balance-sheet. Amazingly, the FSA reckons the problem went undetected for almost seven years.
Its better for them to sell stuff and then put that money in an account earning interest.
JP is my bank so I’m glad the caught this glitch.
It’s the same in shipping. Not uncommon to have to wait 4-6 mos. for payment while the money is earning interest for the shipper. I’m talkin’ Ocean Freight, not trucking.
30 - ha - I’m seeing 75, 90, and 120 terms coming across.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.