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JP Morgan Chase Banking Analysis Essay

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Updated: Feb 25th, 2021

Discuss how administrative agencies like the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC) take action in order to be effective in preventing high-risk gambles in securities/banking, a foundation of the economy.

JP Morgan Chase, considered to be America’s largest bank, was recently involved in a scandal where it failed to keep an eye on its traders as they over-valued a rather complicated portfolio meant to hide huge losses (Weir, 2002). The bank, together with a few others such as Credit Suisse Group AG and Barclays PLS, is accused of providing false data and breaking a fundamental rule of corporate governance and corporate social responsibility (Gillies, 2004). This move deprived the Securities and Exchange Commission Board of crucial information required to fully assess the issues facing the companies and determine whether or not accurate as well as reliable information was being made known to regulators and investors. The Board decided that JPMorgan Chase would pay a $1 billion fine for the provision of misinformation, which allowed them to gain an advantage in their investments while depriving investors of their interest rate payments (Alghamdi, 2011).

The Securities and Exchange Commission, or the SEC, is a United States regulatory commission that was established in the year 1934 by Congress. SEC is charged with the responsibility of restoring the confidence of investors by eliminating misleading sales practices as well as stock manipulations that initially resulted in the collapse of the stock market, way back in 1929 (Weir, 2002). Both SEC and Commodities Futures Trading Commission referred to as CFTC, aim at taking action in order to be effective in preventing high-risk gambles in security or banking, a foundation of the economy (Gillies, 2004). CFTC is an independent United States federal agency that was established in the year 1974 by the Commodity Futures Trading Commission Act and is responsible for regulating options markets as well as the commodity futures (Gillies, 2004). CFTC not only aims at promoting competitive and efficient market futures but also tends to protect investors from manipulative, abusive trade practices, and fraud (Alghamdi, 2011). These US federal government agencies dictate that companies that are offering securities are required to make full public disclosure of any information considered relevant, something that JPMorgan Chase and a few other banks failed to do.

Determine the elements of a valid contract, and discuss how consumers and banks each have a duty of good faith and fair dealing in the banking relationship.

A contract can be defined as an agreement between 2 or more parties, which creates a legal obligation to undertake or not to undertake a specified action (Weir, 2002). A valid contract usually has a number of elements, which are five of them. The first element is the intention to create legally binding contracts, while the second element is an offer. An offer is an expression of being ready to do something which, if followed by the unconditional acceptance of another party, leads to a valid contract (Gillies, 2004). The offer is usually considered valid for a reasonable length of time before it is revoked or canceled by the offeror. The acceptance, which is normally made orally or in writing, is the third element of a valid contract, while consideration is the fourth. Consideration is a detriment to the party, making a promise or a benefit conferred on the other party (Alghamdi, 2011). The fifth and last element of a valid contract is the capacity or authority to make contracts, where individuals under the age of 18 years and mentally disordered persons are not included (Weir, 2002).

Good faith and fair dealing in any given contractual relation dates as far back as Roman law and is implied in every contract. Initially, it was observed that not only good morals but the common law as well, require good faith, where every individual in their contracts must act with common honesty (Gillies, 2004). The power to imply comprised the basis for recognition of the obligation of good faith and fair dealing in a number of transactions, including banking. A duty of good faith and fair dealing often requires a party to desist from acting in a manner so as to jeopardize another party’s contractual rights (Alghamdi, 2011). It is quite clear from the JPMorgan Chase and Barclays Pls cases that these banks failed in their duty of good faith and fair dealings, as they did not act in an honest manner while submitting their reports to the SEC. This also resulted in mistrust from their customers following this scandal, which saw a few of them withdrawing their services.

Compare and contrast the differences between intentional and negligent tort actions.

A tort is a civil wrong that is recognized by law as grounds for filing a lawsuit; it is a wrongful injury to an individual or their property (Weir, 2002). A tort law states that an individual is held responsible in certain situations following other people’s injuries regardless of blame (Gillies, 2004). Torts are categorized into two main groups, that is, intentional tort actions and negligence tort actions. Intentional torts, as the term implies, are wrongs committed by the defendant knowingly and are designed to cause injury to another person or their property (Alghamdi, 2011). Intentional torts can either be in the form of assault, false imprisonment, defamation by computer, conversion, trespass, misrepresentation, or fraud (Weir, 2002). Negligence tort actions, on the other hand, take place when a defendant’s actions were considered to be unreasonably safe or where there was a failure to exercise reasonable care in order to avoid injury of other persons (Gillies, 2004).

Negligence is quite different from intentional tort as the former does not require the intent to carry out a wrongful action. Another important difference between intentional and negligence torts is that insurance companies do not usually incorporate coverage in their policies for damages awarded in the case of intentional torts, unlike in that of negligence (Alghamdi, 2011). However, the essential distinction between these two torts is the fact that while intentional tort actions take place when one party deliberately seeks to cause harm to another party, negligence tort actions do not involve deliberate action to cause harm but instead fail to take reasonable actions to prevent injury or harm to another individual (Weir, 2002).

Discuss the tort action of “Interference with Contractual Relations and Participating in a Breach of Fiduciary duty” and, if the bank you’ve chosen were to behave as JP Morgan did, would you be able to prevail in such a tort action.

A tort of Interference with Contractual Relations is one that is intended to protect the rights to enjoy the advantages of a legally binding contract (Gillies, 2004). This particular tort also provides a remedy when the defendant (s) intentionally induces another individual to breach a certain contract with the plaintiff (Alghamdi, 2011). The Tort of Interferences with Contractual Relations requires the intent to interfere where the defendant induces the contracting party to breach, as compared to creating a chance for the breach. This inducing is what is referred to as a breach of fiduciary duty, thus resulting in the tort of Participation in a Breach of Fiduciary Duty (Weir, 2002). It should, however, be noted that where good grounds for the interference exist, the defendant is usually not held liable. Interference with Contractual Relations can include interference with business relations, which involves a meddling third party intentionally preventing a company or organization from creating a business relationship, and interference with contract rights, which generally happens when a third party convinces a company or organization to breach its contract with another company or organization (Gillies, 2004). On the other hand, a fiduciary refers to a person charged with acting in another person’s best interest (Alghamdi, 2011). A breach of fiduciary duty, therefore, takes place if a director or corporation’s officer behaves in a manner viewed as unfavorable to the shareholders’ interests (Weir, 2002).

Considering the case of Barclays Pls, which behaved as JPMorgan Chase did, I believe that I would be able to prevail in the tort action of Interference with Contractual Relations and Participating in a Breach of Fiduciary duty (Gillies, 2004). It is the responsibility of directors and corporate officers to owe a fiduciary duty of good faith, fair dealings, and loyalty towards companies for which they represent or employees (Alghamdi, 2011). The actions of both Barclay’s Pls and JPMorgan Chase resulted in huge trading losses, leading to deprivation of investors’ interest rate payments and a lack of future trust from customers, stakeholders as well as employees.

With the advent of mobile banking, discuss how banks have protected the software that allows for online transactions to occur through automation.

Mobile banking is whereby one can make a bank transaction or pay their bills through Internet services provided on their mobile phones (Weir, 2002). This particular technology allows individuals to carry out their banking transactions without necessarily having to leave their house or spare time from work to go to the nearest bank. Many banks have implemented automation where services of technology are engaged in doing things for their customers so that the customers do not have to do them, thus minimizing the level of human intervention in the process (Gillies, 2004). The software that allows online transactions to occur through automation has numerous benefits, for instance, the fact that it involves low operation costs in terms of purchasing office equipment, physical office overheads, and training employees (Alghamdi, 2011).

By automating the banking business, today’s banks are in a position to offer tools needed for the satisfaction of specific needs and wants of specific clients (Weir, 2002). Automation also helps the banks to be more flexible, thus allowing them to adjust instantly to changing banking conditions in their business surroundings. When customers carry out their banking transactions online through mobile banking, they tend to avoid being caught up in scandals such as that witnessed in JPMorgan Chase and Barclays Pls banks.

Conclusion

Corporate social responsibility is an important aspect of any given organization, particularly in today’s ever-changing business world. Unfortunately, there are a few businesses that try to get ahead of the competition by cheating their way through or providing false information to the public and other concerned authorities, misleading them in the end regarding their actual business deals. JPMorgan Chase and Barclays Pls are but a few of the firms that have recently been caught up in scandals involving banking where they have also misled their customers and stakeholders. It is, therefore, important for businesses and organizations to take into consideration the need for following up on their contracts and act with common honesty.

References

Alghamdi, A.M. (2011). Law of E-Commerce, E-Contracts, E-Business. Bloomington, IN: AuthorHouse.

Gillies, P. (2004). Business Law. Sydney: Federation Press.

Weir, T. (2002). Tort Law. Oxford: Oxford University Press, Incorporated.

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