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

It’s the untold story of JP Morgan’s credit trading losses – how traders were able to reduce risk-weighted assets while loading up on risk, and the part played by Basel 2.5. Michael Watt reports

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

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact or view our subscription options here:

You are currently unable to copy this content. Please contact to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

The new rules of market risk management

Amid 2020’s Covid-19-related market turmoil – with volatility and value-at-risk (VAR) measures soaring – some of the world’s largest investment banks took advantage of the extraordinary conditions to notch up record trading revenues. In a recent…

ETF strategies to manage market volatility

Money managers and institutional investors are re-evaluating investment strategies in the face of rapidly shifting market conditions. Consequently, selective genres of exchange-traded funds (ETFs) are seeing robust growth in assets. Hong Kong Exchanges…

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here