Is America’s Largest Bank, JPMorgan Chase, the Cause of the Fed’s Emergency Loans?

The mega-bank’s CEO, Jamie Dimon, is always talking about his bank’s “fortress balance sheet.” So exactly why did he need to draw down $158 billion in cash from the bank’s deposits at the Federal Reserve?

By Pam Martens and Russ Martens of Wall Street on Parade

Two notable things happened on Monday, September 16, 2019. Rates started to spike in the overnight loan (repo) market, reaching a high of 10 percent the next day and forcing the Federal Reserve to step in as a lender of last resort for the first time since the financial crisis. The Fed has had to intervene every business day since then with overnight loans, funneling hundreds of billions of dollars to its primary dealers, while also providing $150 billion in 14-day term loans to unnamed banks.

The other notable thing to occur on September 16 was this: The largest bank in the United States, JPMorgan Chase, had its precious metals desk charged by the U.S. Department of Justice with being a criminal enterprise for approximately eight years as it rigged the prices of gold, silver and other precious metals. The head of that desk and two other precious metals traders were charged with racketeering under the RICO statute that is typically reserved for organized crime. The Justice Department said that the traders and their co-conspirators (others may be named at a later date) “conducted the affairs of the desk through a pattern of racketeering activity, specifically, wire fraud affecting a financial institution and bank fraud.”

Wall Street veterans cannot remember any other time in history when the RICO statute (Racketeer Influenced and Corrupt Organizations Act) was used against a large bank in the United States. It was, however, used to indict members of the Gambino and Bonanno crime families in 2017.

JPMorgan Chase and its wily Chairman and CEO, Jamie Dimon, knew that the Justice Department was likely to be making serious charges about its precious metals desk. One of its traders on that desk, John Edmonds, had pleaded guilty to the Justice Department in October of last year and was cooperating in the probe.

In its February 2019 10-K filing with the Securities and Exchange Commission, JPMorgan Chase indicated that it knew more charges could be coming, writing that: “Various authorities, including the Department of Justice’s Criminal Division, are conducting investigations relating to trading practices in the precious metals markets and related conduct.”

Yesterday, Reuters’ David Henry reported the following:

“Analysts and bank rivals said big changes JPMorgan made in its balance sheet played a role in the spike in the repo market, which is an important adjunct to the Fed Funds market and used by the Fed to influence interest rates…

“Publicly-filed data shows JPMorgan reduced the cash it has on deposit at the Federal Reserve, from which it might have lent, by $158 billion in the year through June, a 57% decline.”

Reuters quotes an unnamed executive from another Wall Street bank calling JPMorgan’s cash move from the Fed “massive.” And, indeed, moving $158 billion within a 6-month period is not small change. The Reuters’ article notes further that JPMorgan’s draw down on its cash “accounted for about a third of the drop in all banking reserves at the Fed during the period.”

Jamie Dimon is always blathering on about his bank’s “fortress balance sheet.” So exactly why did he need to draw down $158 billion in cash from the bank’s deposits at the Federal Reserve. JPMorgan Chase has over 5,000 bank branches across the United States taking in deposits daily from average Americans

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