JPMorgan loss laxity of risk: Geithner

The $2 billion loss by JPMorgan Chase is a failure of risk management, US Treasury Secretary Timothy Geithner said, as the FBI launched an investigation into the issue.

He also called for tough and effective reforms so that when such mistakes happen, they are modest in size and the financial system can handle them well.

“I think this failure of risk management is just a very powerful case for financial reform. The reforms we still have ahead and the reforms we’ve already put in place,” Geithner said.

He added, however, “The test of reform is not whether you can prevent banks from making mistakes, errors of judgment of risk management. That’s going to happen. It’s inevitable.

The test of reform should be do those mistakes put at risk the broader economy, the financial system or the taxpayer?” The government has been very forceful and effective in managing the broader financial rescue, forcing much more capital into the system, he noted.