JPMorgan has been hit with a €12.2 million penalty by the European Central Bank after regulators discovered the American lender had spent five years submitting capital reports that overstated how much of a financial cushion it was holding.
The fine, announced Thursday, is the largest the ECB has issued since it took on banking supervision responsibilities. Frankfurt regulators said the bank misclassified some transactions and simply left others out when calculating how risky its asset base was — errors that stretched from 2019 through last year. What that did, in practical terms, was make JPMorgan look safer on paper than it actually was. European banks are required to keep cash or easily sold assets on hand in proportion to how much risk they’re carrying. Underreporting risk frees up capital that can be put to work elsewhere, potentially in ventures that would have been off-limits had the true numbers been disclosed.
The ECB didn’t mince words about how it happened. “The bank committed both breaches with serious negligence, driven by evident deficiencies in its internal processes,” it said. The bank’s own internal checks, meant to catch exactly this sort of problem, didn’t flag it until much later.
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JPMorgan acknowledged the fine through a spokesperson who told AFP the issues had been “proactively identified and self-reported” and were now fixed.
The bank stressed it had maintained strong capital reserves throughout and that nothing about its approach to capitalization had changed.
The ECB didn’t say which kinds of transactions were mishandled or specify whether JPMorgan ever dipped below the legal minimum during the period.
It also didn’t reveal whether the bank’s decision to come forward on its own had any bearing on the size of the penalty.
The previous record fine from the ECB came just last week — €7.55 million levied against Credit Agricole for dragging its feet on climate risk assessments that supervisors had requested.
JPMorgan SE, the Frankfurt-based entity that received the fine, serves as the bank’s main European arm.
It became the center of JPMorgan’s eurozone operations after Brexit forced American banks to shift certain activities out of London and onto the continent.
The ECB supervises around 115 of the eurozone’s largest banks and has the power to impose fines when institutions violate capital, liquidity or governance rules. Penalties depend on how bad the breach was, how big the bank is, and whether the violation was deliberate or careless.
European lenders operate under Basel III standards, which were tightened after the 2008 crisis to ensure banks could absorb losses during downturns.
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Those rules require institutions to hold capital in proportion to the riskiness of what’s on their balance sheets — a metric that depends entirely on accurate reporting.
For JPMorgan, which posted $58.5 billion in net income last year, the fine barely registers as a line item. But the episode underscores persistent weaknesses in how even the largest institutions manage internal controls and risk disclosure, issues regulators across multiple jurisdictions have been pressing on for years.
Climate risk, operational resilience and cybersecurity have joined traditional capital oversight as areas drawing heavier regulatory attention.
The Credit Agricole penalty last week signaled that the ECB is willing to fine banks not just for capital shortfalls but for failing to respond quickly enough to new supervisory expectations.
The ECB gave no indication whether it plans further action against JPMorgan or will place the bank under enhanced monitoring going forward.