Model driven Risk analysis - not a guaranteed fail safe

The recent Senate Committee hearing into losses at J.P.Morgan concluded that the Bank ignored risk and misled investors. The bank lost $6.2bn (£4.1bn) in what was dubbed the London Whale trades.

Ina Drew, a former JP Morgan bank executive, whose department suffered multi-billion-dollar losses, has said she was not to blame for them.

Drew, who was chief investment officer, said the bank's risk models were flawed and that some London-based staff hid information from her.

Bruno Iksil, the trader at the heart of the incident, was dubbed the London Whale because the positions taken were big enough to move markets.

Ms Drew said that she believed her oversight of the department was "reasonable and diligent". She said she had no knowledge that some trades were inflated or "not reported in good faith".

The Senate subcommittee issued a report which said that JP Morgan had ignored risks, misled investors and fought with financial regulators.

"We found a trading operation that piled on risk, ignored limits on risk-taking, hid losses, dodged oversight and misinformed the public," said Carl Levin, the subcommittee's chairman.

This is yet another example of the reckless and short-termism so prevalent throughout  the Banking system.

Notwithstanding the most sophisticated computer modelling of risk analysis and reporting procedures the only real fail safe in a trading environment is the integrity of the traders and the competence of those to whom they report.

All too often the reality of the situation is obscured by the attraction of the “profits” being generated.

Few people ever want to challenge a situation where they benefit from turning a blind eye.

Until and unless there is a seismic change in “culture” and operating practices then we will continue to see other banks and corporations following in the wake of Barings, RBS, J.P.Morgan, UBS et al.