JPMorgan Chase and Co. is a bank “too big to fail,” and according to the G20 or The Group of Twenty, it is the bank too big to fail.
  The G20 is an international forum of the world’s major governments and central banks, and recently published a report stating if JPMorgan were to get into trouble, the greatest global financial havoc could follow because the bank is interconnected with so many smaller banks and investors.
  As Wall Street sputters into 2016 amidst global market volatility, many in Central Ohio and the rest of the state aren’t aware of how connected JPMorgan is to the local workforce and beyond. Way beyond, as in 200,000 state worker retirees and their beneficiaries.
  JPMorgan is the region’s largest private-employer with more than 20,000 workers, and many are well-paid. JPMorgan is also the custodian of the Ohio Public Employees Retirement System’s international fund, which accounts for $21 billion of the pension’s total fund that’s currently at $87 billion.
  Pension fund custodians are charged with safeguarding the fund’s assets and usually do not buy or sell the assets without approval from owners.
  The Ohio Public Employees Retire System (OPERS) pays out an average benefit of roughly $24,000 annually or $2,000 a month to 200,000 retirees. And according to OPERS these benefits are paid from returns on its $87 billion fund.
  With the Columbus and Ohio interconnectedness in mind, what if JPMorgan were to tank? Denied a multi-billion dollar taxpayer bailout and allowed to fail? Hillary Clinton in October vowed to Stephen Colbert if she’s president and JPMorgan goes insolvent, “They will fail.” Even JPMorgan’s celebrated and also vilified CEO Jamie Dimon recently said, “Banks should be allowed to fail.”  
  However, this doesn’t necessarily mean that 20,000 local JPMorgan employees will suddenly be out of work. Or that 200,000 OPERS retirees would take a serious hit to their pension check.
  But if JPMorgan were to declare bankruptcy, as Lehman Brother’s did during the 2008 financial crisis, what happens next to Columbus and state retirees is impossible to answer. Just months before the 2008 crisis, Lehman Brothers said problems in the subprime housing market would not hurt the US economy. What followed was the Great Recession.
  Dr. Itzhak Ben-David is a financial economics professor at The Ohio State University Fisher College of Business, and even he admits when compared to other professors at the college, his work is critical of Wall Street and has focused on what causes markets to crash.  
  For example Dr. Ben-David published a paper that found chief financial officers predict the stock market accurately only a third of the time. Moreover they are too overconfident and fail to see how volatile the markets are even in normal times, stated his paper.
  Nevertheless, Dr. Ben-David said it wouldn’t be catastrophic for Columbus if JPMorgan were to go the way of Lehman Brothers. The road ahead though would get bumpy.
  “Is there a risk to Columbus? I would guess yes,” he said to The Free Press. “But this doesn’t mean there would be big lay-offs. It is likely that JPMorgan would be sold to another bank, and this new bank wouldn’t necessarily clean house.”
  As for the OPERS pension fund, Dr. Ben-David said pension funds are supposed to be safe from volatility because the custodian cannot touch the fund unless instructed otherwise. A pension fund custodian for the most part is tasked to reinvest the fund’s returns.
  Furthermore, numerous regulatory measures are in place to protect pension funds. From rogue investors, for instance, who may misuse the fund’s assets to make high-risk “prohibitive transactions.”
  Yet JPMorgan and other mega-banks have faced numerous lawsuits from pension funds making those very accusations. In 2012 JPMorgan agreed to settle with the American Federation of Television and Radio Artists Retirement Fund after it alleged the bank breached its responsibility to make safe investments. The fund lost nearly all its money, according to The New York Times.
  Nonetheless, echoing Dr. Ben-David that OPERS will remain financially secure is William Winegarner, a past director for Public Employee Retirees Inc. (PERI), which is the Columbus-based political action committee for all who receive a pension from OPERS. Winegarner, who retired at the end of 2015, said because the OPERS fund is the one of the largest such funds in the US, it can absorb hits taken from any JPMorgan recklessness.
  “Any loss to the pension system is a loss to the overall health of the pension system,” said Winegarner. “Is that loss significant enough to impact what a retiree would get in their pension check? The answer is no.”
  Indeed, JPMorgan then has hurt the overall health of OPERS. In December the bank agreed to pay $150 million to settle a lawsuit filed by OPERS and other pension funds whose stock in the bank tanked after a trading scandal that rocked JPMorgan back in 2012.
  The scandal was the dubbed the “London Whale” after JPMorgan investors in London took large positions in credit-default swaps which cost the bank $6 billion, making its stock plunge nearly 10 percent in a single day. Credit default swaps were invented by JPMorgan in the early 1990s, and helped ignite the 2008 financial crisis.
  For those not educated in finance, trying to grasp how a credit default swap exactly works is akin to a grade-schooler trying to learn college physics. Perhaps what is most disturbing about credit default swaps is that a buyer will profit if certain loans, whether commercial or municipal, are defaulted on.
  What is arguably most disturbing about OPERS and the “London Whale” is that the scandal occurred just several weeks after OPERS in 2012 decided to go with JPMorgan as its international fund custodian.
  The decision was made after OPERS fired the Bank of New York Mellon for making risky foreign-exchange trades.