WASHINGTON (Dow Jones)--A top U.S. banking official Wednesday said regulators are working to define hedging, a key term in Washington this week amid questions about whether J.P. Morgan Chase & Co.'s (JPM) more than $2 billion loss was the result of a move to hedge against losses or a bet aimed at generating big profits.
"That's something that we are working on," said Comptroller of the Currency Thomas J. Curry, noting that the definition should be hashed out as regulators finalize the "Volcker rule," which aims to limit bank risk-taking. The rule, which stems from the 2010 Dodd-Frank law, would prohibit banks from making bets with their own money but allow some form of hedging against losses.
Without weighing in specifically on J.P. Morgan Chase's case, Curry noted that federal officials will be discussing "in great detail" the difference between pure balance sheet hedging transactions and risky bets made to generate large profits.
Curry's comments to bankers at the Exchequer Club in Washington came as J.P. Morgan's trading losses raise questions about whether the bank's trades would be permitted under the Volcker rule. Critics point to the size and complexity of the trades as a sign that the bank was seeking to generate profits rather than simply protecting its portfolio.
Still, J.P. Morgan has said the losses occurred in a portfolio designed to "hedge the firm's overall credit exposure."
Earlier this week, the OCC said it was reviewing the trading loss but said it is unclear whether those trades would have violated a proposed ban on banks' trading with their own funds. The agency also said it was evaluating how other large banks manage their risks.
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687, firstname.lastname@example.org