JPMorgan Chase CEO Jamie Dimon returned to Capitol Hill, this time to get grilled by both Democrats and Republicans from the House Committee on Financial Services.
Before Dimon took the hot seat, lawmakers threw questions at several regulators including Securities and Exchange Commission chairman Mary Schapiro, U.S. Comptroller of the Currency Thomas Curry, Commodity Futures Trading Commission (CFTC) chairman Gary Gensler, FDIC acting chairman Martin Gruenberg and the Federal Reserve's general counsel Scott Alvarez.
The regulators effectively pointed fingers at JPMorgan for the massive trading loss.
JPMorgan's trading loss was caused by "serious risk management weakness or failures" at the bank, said Curry. Schapiro, Gensler, Gruenberg and Alvarez also placed the blame largely on JPMorgan, while noting that they are closely monitoring the bank now.
Dimon, who was once dubbed President Obama's favorite banker, testified before the Senate Banking Committee last week. During the two-hour hearing, Dimon said that he cannot defend the trades that led to the bank's massive multi-billion loss.
1:45 pm: Instead of too big to fail, Rep. Al Green wants to talk to Dimon about "too small to live off of" at some point. But not today, says Bachus. And that's a wrap. Hearing adjourned.
1:40 pm: Dimon says banks need to be able to hedge because they can't necessarily unwind positions as quickly as they would need to. For example, if JPMorgan's board decides it doesn't want to have exposure to Italy, the bank would have to hedge against its bet on Italy.
1:20 pm: How can we fix Dodd-Frank?
"Regulation is not binary. It's not left or right, it's not democratic or republican," says Dimon. "These are complex things and should be done the right way, in closed rooms where you can talk about what works and what doesn't work." He also says that open hearings, like the one he is testifying is, aren't that helpful for the conversation.
"We want a safer system too," Dimon adds. "But I have to mention that [the financial system] is a lot safer and healthier today. Regulation has created more capital and more liquidity. A lot has been accomplished."
1:10 pm: Rep. Capuano really wants to know what Dimon thinks about the CFTC's budget, but Dimon refuses to say much because he's "never looked at the CFTC's budget. Dimon does say that they have recognized that the CFTC and SEC have overlapping roles, so why not fix that problem before throwing more money at the CFTC, he asks.
"That's what I do with my company," he quips. But Capuano urges Dimon to take a look at the CFTC's budget and get back to him.
12:40 pm: Doesn't seem that Dimon cares all that much about his position on the New York Fed's board. Says that he thinks someone involved in global markets should have a seat at the table, but it doesn't have to be him. Reminds Congress that they make the rules on that. (Read: Why is Jamie Dimon on a Federal Reserve board?)
12:35 pm: Rep. Gary Ackerman equates gambling with investing, but Dimon obviously disagrees:
Ackerman says in his experience, he loses often when he invests. Dimon says he can hook him up with some better financial advisors.
12:29 pm: O Canada! O Canada!
12:24 pm: When JPMorgan reports results on July 13, Dimon assures bank will deliver a profit.
12:20 pm: Volcker Rules comes up again. Dimon says that original bet would have been allowed under Volcker Rule, since it allows portfolio hedging. But he's not sure how what the bet turned into would be treated under the Volcker Rule.
"If the Volcker Rule did prevent it, it wouldn't bother me," said Dimon. "I woudn't be sitting here."
12:10 pm: Rep. Sean Duffy asks whether JPMorgan is too big to fail, but Dimon rejects the idea.
So could JPMorgan lose $50 billion in a bad trade?
12:00 pm: Dimon does not agree with CFTC's Gensler that overseas operations should be regulated the same way as U.S. operations.
Says that while shareholders are impacted by the losses, JPMorgan could not compete as well if its overseas operations were regulated under different rules from its foreign competitors.
"We wouldn't be able to provide the best products and services to our U.S. clients or overseas clients," said Dimon. "They will go elsewhere if we can't give them the best possible deal.
Instead of including London and other foreign operations under Dodd-Frank, Dimon said lawmakers should focus on fixing current policies to better regulate U.S. operations.
11:57 am: Rep. Barney is getting tough. Asks Dimon whether his own compensation ($23 million in 2011) will be considered for clawback:
"Mine is 100% up to my board," said Dimon. "They will do what they see is appropriate. I can't tell my board what to do."
11:50 am: Rep. Donald Manzullo starts with a softball question for Dimon: What's a bigger deal...this trade or Europe's two-year old debt crisis?
11:48 am: Rep. Lynch questions if Jamie Dimon can testify under oath, but Chaiman Bachus says no reason to make him do any differently than others who come voluntarily come before the committee.
11:46 am: Not a bad choice:
11:40 am: Dimon is reading the same prepared testimony he delivered at last week's hearing in the Senate. But Q&A with House members should be lively.
11:38 am: Regulators are dismissed. Dimon's up next.
11:30 am: Rep. Stephen Lynch asks if JPMorgan's losses are around $5.2 billion, as estimated in a Morgan Stanley Report. Curry says the OCC is "still reviewing the scope of the potential losses."
11:15 am: Rep. Capuano is getting feisty as he questions whether financial system is sound.
OCC's Curry assures him that "we do not believe the sytem is at risk from this situation."
Schapiro agrees, in saying that the system is at least "sounder than it was."
But CFTC's Gensler said American's are safe on this road regulatory system is stronger, and covers overseas.
11:10 am: OCC's Curry and and SEC's Schapiro says their agencies first heard about the losses at the time the first news articles came out about the London Whale in early April.
10:50 am: What happens in London doesn't stay in London:
10:45 am: On the role of capital:
10:40 am: Waters asks if a risk taken at a bank's London branch stays in London, and Gensler makes another pitch to be able to regulate U.S. bank operations overseas. Notes that AIG was in London.
"Often it comes right back here, crashing into our shores," said Gensler.
10:35 am: Bank stocks, including JPMorgan (JPM), are rallying.
10:20 am: The Fed's general counsel Alvarez says the Fed is still working on the Volcker Rule proposal.
10:18 am: The OCC's Curry says the events at JPMorgan do not threaten the broader financial system. Under current market conditions, JPMorgan's effort to manage its position is not creating an unusual risk of contagion to other banks. Examiners have reported that there is no activity similar to the scale or complexity of JPMorgan's at other banks.
10:15 am: CFTC chairman Gensler says Dodd-Frank derivatives rules needing to also apply overseas, including London, where JPMorgan's losses originated.
10:10 am: CNN's Paul Courson snaps a photo of demonstrators gathered in the halls of the Rayburn building ahead of Dimon's appearance.
10:03 am: SEC chief Mary Schapiro is the first of the regulators to provide her prepared testimony. Bachus notes it's also her birthday!
9:55 am: Rough start, and Dimon isn't anywhere to be seen yet. Republicans and Democrats are fighting about whether or not their outraged enough over JPMorgan's loss.
Rep Michael Capuano says Dodd-Frank "MADE ME A MOVIE STAR IN INSIDE JOB." Yes, he's yelling it.—
Heidi N. Moore (@moorehn) June 19, 2012
9:45 am: Rep. Maxine Waters says this hearing is not just about JPMorgan's $2 billion or $3 billion loss (though estimates are much higher). It's about the $10 or $15 billion loss that could come next if lawmakers don't improve regulation.
9:40 am: Rep. Barney Frank, ranking member of the committee, delivers his opening statement:
9:34 am: Rep. Spencer Bachus, an Alabama Republican who runs the House Financial Services committee makes his opening remarks. He says today's hearing, specifically the conversation with regulators, will help determine whether the Volcker Rule could have prevented JPMorgan's massive loss.
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