Abstract
The $2.0 billion plus derivatives trading loss announced by JP Morgan in May 2012 raises questions concerning the vast expansion of the federal safety net for banks that has resulted from government policies since the financial crisis, particularly with respect to the concentration of assets in the banking system due to the ballooning of FDIC insurance by $2.5 trillion. JP Morgan's loss raises questions concerning the ability of banking regulators to effectively supervise large, complex banking organizations and suggests that it is unwise for the Federal Reserve to discourage diversity in the financial system by seeking to incapacitate money market funds as safe and efficient alternatives to banks.
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