The Federal Reserve Bank of New York failed to examine JPMorgan Chase & Co.’s investment unit ahead of the bank’s 2012 “London whale” trading debacle, despite a recommendation from other Fed supervisors that it look at the unit involved in the trades, according to a new report, the Wall Street Journal reported today. The Fed’s Office of Inspector General yesterday released a four-page summary of a years-long investigation, saying that Fed supervisors didn’t follow up on signs that the bank’s chief investment office — where the traders engaging in the problematic derivatives transactions were based — needed a closer look. A team of experts from across the Fed system recommended that the New York Fed conduct “a full-scope examination” of the JPMorgan unit in 2009, but the regulator never did, the report said. In 2012, JPMorgan announced losses in the unit related to botched derivatives trades that eventually cost the bank $6 billion. The inspector general found that the New York Fed’s planned exam never went off “due to many supervisory demands and a lack of supervisory resources,” weaknesses in planning procedures, and the loss of “institutional knowledge” following a 2011 reorganization of the team supervising JPMorgan, according to the report.
