Geithner: JPMorgan loss shows need for financial reform

Treasury Secretary Timothy Geithner said JPMorgan Chase's $2 billion trading loss makes a "very powerful case" for the Dodd-Frank financial reform law.

Geithner maintained Tuesday that the purpose of the financial overhaul was never to ensure financial firms did not make costly mistakes in the future, but just that the brunt of those mistakes would fall on the firm and its shareholders, not taxpayers.

"The test of reform is not whether you can prevent banks from making mistakes … that’s going to happen, it’s inevitable," he said at a fiscal summit hosted by the Peter G. Peterson Foundation. "The test of reform is, do those mistakes put at risk the broader economy?"

Banks are now required to hold more capital, cut down on their leverage and ensure better cushions across the financial system to accommodate losses, he said.

Geithner's comments echo those made by other White House officials, who have refrained from blasting the bank for its bad investment, and instead used the event to bolster the case for the financial overhaul.

JPMorgan, the nation's largest bank, announced Thursday that one of its trades would end up costing the firm at least $2 billion. The mistake mars the reputation of the firm, which emerged from the financial crisis in better shape than most of its competitors, as well as that of its head, the outspoken Jamie Dimon.

Geithner said he had not spoken to Dimon since "the incident." The two spent time together at the Federal Reserve Bank of New York -- Geithner was the bank's president before becoming Treasury secretary in 2009, and Dimon serves on its board.

JPMorgan's solvency is not expected to be at risk due to the trade, but Geithner called the substantial loss "definitely a risk-management failure."

He added that regulators, including the Securities and Exchange Commission and the Federal Reserve, are closely examining how the trade occurred.

"They're going to take a very careful look at this," he said.

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