JP Morgan and the CRM: How Basel 2.5 beached the London Whale

A humpback whale jumping out of water

Anyone trying to make sense of the credit trading losses at JP Morgan – and understand why a simple hedging strategy became a complex bet on the relationship between different credit spreads – first needs to understand the comprehensive risk measure (CRM), part of the Basel 2.5 package of trading book capital rules, which is due to be implemented for US banks at the start of 2013.

According to 10 traders, risk managers and quants who spoke to Risk for this article, it was the CRM that JP Morgan

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