The $2 billion trading loss at JPMorgan Chase has renewed calls for stricter oversight of Wall Street banks. Two years after Congress passed an overhaul of financial rules, many of those changes have yet to be finalized.
JPMorgan's misstep gives advocates of stronger regulation an opening to argue that regulators should toughen their approach.
The Obama administration has argued that it went as hard on banks as possible without further upsetting global finance. Now Democratic lawmakers and administration officials say the JPMorgan case proves that more change is needed.
The loss "helps make the case" for tougher rules on banks, Treasury Secretary Timothy Geithner said in a speech Tuesday. Regulators and the Treasury Department "are going to take a very careful look at this incident, of course, and make sure that we review the implications of what that means for the design of these remaining rules," he said.
Still, many in the industry warn against reading too much into one trading loss. They say losing money is an inevitable part of taking risk, as banks must.
Some fear that after JPMorgan's announcement, regulators will greet industry concerns with more skepticism as they flesh out key parts of the overhaul law.
Here's a look at four key parts of the financial overhaul and how they might be affected by JPMorgan's losses:
The Volcker rule: This provision restricts banks' ability to trade for their own profit, a practice known as proprietary trading. It is named for former Federal Reserve Chairman Paul Volcker.
Banks say it disrupts two of their core functions: Creating markets for customers who want to buy financial products and managing their own risk to prevent major losses.
Advocates of stronger regulation argue that the rule would have prevented JPMorgan's loss. They say the trades were made to boost bank profits, not to protect against marketwide risk.
Ending "too big to fail": During the 2008 financial crisis and the bailouts that followed, the government was unwilling to let the biggest banks fail, for fear of upending the financial system. As part of the overhaul, Congress created a process to shut down financial companies whose failure could threaten the system.
Most players agree that this is a good idea, despite some differences on the details.
Regulating derivatives: JPMorgan's bets involved complex investments known as derivatives whose value is based on the value of another investment. Before 2008, many derivatives were traded as individual contracts between banks and hedge funds, without any transparency for regulators.
Overhauling the rules governing this market, estimated at $650 trillion, has proved to be as complex as the investments themselves. Banks support many parts of the overhaul but generally argue that forcing too much transparency would make it harder and more expensive for companies to use derivatives as a hedge against risk. Bank oversight: The overhaul calls on the Federal Reserve to oversee the biggest and most important financial companies and apply a stricter set of standards for financial fitness.
Industry officials say they're working with regulators to fine-tune how big companies will be overseen.
And it's still not known exactly which financial companies will fall into this category.