JP Morgan Chase says news reports circulating on the Internet that the bank is exerting new capital controls on certain bank accounts are an overreaction to a “streamlining” and “derisking” process Chase says has been underway for several months.

The bank has sent letters to certain customers saying they will be unable to send and receive domestic and international wire transfers, and “cash activity” will be limited to $50,000 per statement cycle, including cash deposits, night drops, and ATM and cash withdrawals.

“These changes will help us more efficiently manage the risks involved with these types of transactions,” one letter reads.

The fear is small and medium-sized businesses could be hurt by the restrictions. But the bank says these were typically mass accounts opened on the Internet, with no bank representative managing them, where domestic or international wire transfers could be sent without bank oversight.

The bank says it is “derisking” these accounts by streamlining the number of customer accounts from, say, six accounts with no bank contact or representative to three accounts with a bank rep managing them. Also the bank said some of the accounts customers had signed up for did not have wire transfer services that customers had wanted, or had limited withdrawal services, but that the bank is instead transferring these customers into new accounts that do provide these services.

Chase said it is not exerting new capital controls on customer accounts.

JP Morgan restrictive policy change: disaster in banking world

JP Morgan Chase has notified his US clients that as of November, 17 the bank will limit all cash transactions and will prohibit all outgoing international bank wires. Doctor Eike Hammer from Hannover, the publisher of “Wirtschaft Aktuell”, a newsletter providing data on political and economic developments in Europe, joined VoR for a more in-depth discussion.

Why do you think Chase announced such a restrictive policy change? What do you think will be the impact?

Of course, it’s an alarming signal. For quite a long we got the fear that the huge derivative books from JPMorgan Chase are very very risky. For example, the total derivative book of JPMorgan Chase is $71 trillion meaning it’s more than 4 times the entire US debt and most of it are interest derivatives, meaning that interest rates are secured by JPMorgan Chase. Now with the debt ceiling reaching in the US, it was quite difficult to keep the rates at this exceptional low rates. So, it might be, that JPMorgan Chase got some sort of trouble because of these derivatives.

All right, but still this move to limit deposits and withdrawals while banning international wire transfers altogether is a very bizarre policy. Do you think it will cripple many small and medium size businesses with Chase accounts?

Of course. It’s a disaster. I mean to limit withdrawal to $50,000 is not enough for most businesses to take on properly. So if you cannot take all your money then use it for your normal business if the bank is of no use for you. Chase Manhattan is one of those banks where most of the international transfers are made by. So, it is absolutely a disaster and it’s an alarming signal, that something must be wrong with this bank. This will surely trigger a lot of more fears around the banking world and around international financial situations.

Many looking at this report thought that this cannot be true altogether and some thought that this is just some speculations, this is not true at all. Do you actually believe that this report may actually be true?

I can imagine that this could be true, of course. I mean we can account any day such measures, they can be forced from the feds to do so, because some irregularities are in the banks. I mean, we have to remember that most of the US banks have got offices inside looking for fraud. And JPMorgan just have to pay fines because they got known of many frauds in connection with interest rates. If cash withdrawals are restricted and I can imagine that this is done, there must be some problems with this bank. It started with Lehman brothers, it started in the same way. They restricted withdrawals too before the bank collapsed and in the meantime they tried to find out some measurement to save the bank.

You have just touched upon my very last question for you. The JPMorgan Chase Bank’s reputation was already under scrutiny after a number of incidents earlier this year. Can we just talk about these incidents? Just remind us about them.

The reputation of course is not very good, because JPMorgan has a huge amount of risk in its books. And no one really knows when these risks will kill the entire bank. For example, only the derivatives on increase rates are $46 trillion. That means if the interest rates increase just a slight, a little bit, the entire wealth from JPMorgan is gone. So it’s too risky and George Soros or Warren Buffet told: “These derivatives are the weapons of mass distraction in the financial world”. And JPMorgan is by far the most exposured bank in these derivatives. So everybody has fear that only a little bit can happen and JPMorgan is out of business. And this goes around the entire financial work because JPMorgan is connected to most of the other banks in the world too.

JP Morgan Chase to limit cash withdrawals, prohibit all outgoing international bank wires, bank officials say

In an apparent effort to front-run official government capital controls, JP Morgan Chase has issued letters to all its business account holders notifying them that as of November, 17 the bank will limit all cash transactions (including deposits, withdrawals, and ATM usage) to $50,000 per month, and will prohibit all outgoing international bank wires.

Chase Bank has moved to limit cash withdrawals while banning business customers from sending international wire transfers causing speculation that the bank is preparing for a looming financial crisis in the United States by imposing capital controls.Bank officials confirmed Wednesday that the new capital limits apply to all business account holders, the bank will stop processing any outgoing international bank wire, and that any monthly cash transactions in excess of the new $50,000 limit will be subject to penalties and fees.

JP Morgan has been broken down by an enormous fine as it works to clear up the mess created by the London Whale trading scandal.

The bank will pay $100 million to the US Commodity Futures Trading Commission, conceding “reckless” behavior led to the trading debacle that generated about $6 billion in losses.

Last month the investment giant agreed to pay about $920 million in penalties to US and UK regulators to settle charges over the London Whale trades.

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