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Morgan loss a risk failure: Geithner

The $2 billion loss by J P Morgan Chase is a failure of risk management, the 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 best way to prevent that from happening is to make sure that banks are forced to hold more capital against risk, to fund themselves more conservatively, to bring down leverage and to make sure that the rest of the financial system has better cushions against these kind of mistakes, Geithner said.
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