Banks controlled by JP Morgan incur severe financial penalty due to Variation of Reserve (VaR) violations, resulting in a substantial loss of $631 million.

In the second quarter of 20XX, the largest US banks experienced a surge in trading profits, with the surge coming at a cost of trading book stability. According to the Federal Reserve, the performance of these banks was marked by an increase in Value at Risk (VaR) exceptions, a measure of potential losses under normal market conditions.

One bank that stood out was Morgan Stanley, which had one VaR exception that resulted in a loss of $87 million on a single day. However, it's worth noting that Morgan Stanley averaged $91 million in daily profits during the quarter. The bank managed to avoid multiple VaR exceptions, despite having only 38 profitable trading days.

JP Morgan, on the other hand, had a record high of $888 billion in total trading assets in June. The bank experienced a pair of VaR exceptions, resulting in a combined loss of $188 million on two trading days during the quarter. JP Morgan had 40 profitable trading days, compared to Goldman Sachs' 33.

Goldman Sachs, the second-largest bank, faced two VaR exceptions worth $153 million and $142 million, totalling $295 million. Statistically, Goldman Sachs' trading profits during the quarter were highly skewed, with ten or more days of $200 million profits and a few days of extreme losses. The bank's total trading assets approached $636 billion, making it the second-largest among the six big US banks, following JP Morgan.

All six big US banks have increased their trading book positions and derivatives exposures to drive profits. Unwinding these increased positions may generate the same kind of trading book volatility that the Fed wants to see reduced.

In an effort to rein in the banks' risk-taking mentality, the Federal Reserve has increased JP Morgan's capital multiplier to 3.5 as a penalty for its third successive cluster of VaR breaches. This means that JP Morgan must hold more capital against market risk. Goldman Sachs and Morgan Stanley, with the second-highest equity swap notionals, follow closely behind JP Morgan in this regard. Goldman Sachs' equity swap notionals approached $1 trillion for the first time.

The increased capital multiplier for JP Morgan is automatically pre-determined by regulations based on the number of VaR exceptions in a 250-day period. JP Morgan declined to comment on the matter.

The quarter that started three days before US President Trump introduced tariffs on 2 April saw these record trading profits. The search results do not provide specific information about which bank suffered the largest loss due to VaR exceptions in the second quarter of 20XX.

Banks controlled by JP Morgan incur severe financial penalty due to Variation of Reserve (VaR) violations, resulting in a substantial loss of $631 million.