The Federal Reserve's New York branch knew about risks JPMorgan Chase was taking with its massive 'London Whale' derivatives bets four years before they imploded, but it failed to act properly to head them off, the U.S. central bank's inspector general said.
Reuters reports that the Fed's Office of Inspector General said on Tuesday one of the key flaws it uncovered in its probe of the 2008 transaction at the Wall Street bank was the New York Fed's over-reliance on certain personnel who left the supervisory team in 2011.
That created a 'significant loss of institutional knowledge' within the team assigned to inspect JPMorgan, the report said.
In what amounts to another recent black eye for the New York Fed's bank supervision unit, the report also noted that competing supervisory priorities and limited resources contributed to a failure to conduct key follow-up examinations.
The London Whale case emerged from JPMorgan's credit derivative trading losses in Europe in 2012, which were connected to its chief investment office (CIO) and ballooned to $6.2 billion (3.84 billion pounds) by the end of that year.
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