JP Morgan report confirms RWA reduction led to CIO loss

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JP Morgan has finally lifted the lid on the events that led to its chief investment office (CIO) losing $6 billion in a credit derivatives trading misadventure last year. An internal report released yesterday attributed the error to a misguided attempt to reduce the CIO's risk-weighted asset (RWA) consumption under Basel 2.5 while maintaining profitability.

For one senior credit portfolio manager at a large European bank, the report highlights the dangerous incentives that have been baked into t

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