Basel 2.5 behind JP Morgan’s CIO trading loss
Rehedging mechanism within the comprehensive risk measure allowed JP Morgan to reduce risk-weighted assets while increasing market risk, claim industry experts
New Basel 2.5 requirements were behind the multi-billion-dollar trading loss reported by JP Morgan earlier this year, according to risk management experts – specifically, a loophole within the comprehensive risk measure (CRM) that allows banks to reduce risk-weighted assets (RWAs) by piling on new trades that increase market risk.
The losses were first announced in May and had reached $5.8 billion as of June 30. According to public disclosures, JP Morgan's chief investment office (CIO) was a big
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