remain vigilant in maintaining. my testimony provides considerable detail about these efforts. i want to use the remainder of my time to provide an overview of what the occ is doing in response to the jpmc losses reported in may. we are the primary regulator of the national bank where the activity leading to its losses occurred. and we are responsible for the prudential supervision of the bank. since early april the occ has been meeting with bank management to discuss the chief investment office positions, risk management and controls. as the positions deteriorated discussions turned to corrective actions and steps necessary to mitigate and reduce the risks of the banks' positions. we in the federal reserve are conducting reviews in the bank and are sharing information with the fdic and other regulators.

we are also undertaking a two pronged review. the first component focuses on evaluating the adequacy of risk. the second component evaluates the lessons learned from this episode that could enhance the risk management processes at this and other banks. consistent with our supervisery policy of heightened expectations we are demanding that the bank adhere to the highest risk management standards. we are not limiting to particular transactions at issue. we are assessing throughout the bank. we are using these events to broadly evaluate the effectiveness of the bank's risk management of cio function and identify ways to improve our supervision. if corrective action is warranted we will pursue

appropriate informal or formal remedial measures. jpmc's national bank has approximately $1.8 trillion in assets and $101 billion in tier one common capital. given that scale the loss by jpmc effects its earnings but does not present a solvency issue. those levels are sufficient to absorb this loss. it is also worth noting that the events do not threaten the broader financial system and the banks' efforts to manage its positions is not creating an unusual risk. there has been much discussion about whether these activities would be permissable under the proposed rule. while it is premature to reach any conclusion before review is complete this episode will help

our thinking on the issues. i appreciate the opportunity to appear before the committee. before closing i want to stress my commitment to insuring that the occ continues to enhance supervision. i look forward to updating you throughout my tenure on how we are achieving strong, effective, fair and balanced supervision of national banks and federal thrifts. thank you. thank you. >> thank you chairman johnson, ranking member shelby and members of the committee for the opportunity to testify today on the fdic's efforts to enhance bank supervision and reduce systemic risk. the most important new fdic authorities under the dodd-frank act are those that provide for the orderly resolution of systemically important financial institutions. since passage of the dodd-frank act the fdic has taken a number of steps to carry out its new responsibilities.

first the fdic established a new office of complexed financial institutions to carry out three core functions, to monitor risk within and across these large complex firms from the standpoint of resolutions and risk to the deposit insurance fund, to conduct resolution planning and respond to crisis and coordinate with regulators overseas regarding significant challenges associated. for the past year and a half this office has been developing internal resolution plans in order to be ready to resolve a failing financial company. the fdic has also completed the basic rule making necessary to carry out its systemic resolution responsibilities. in july of last year approved a final rule implementing the orderly limb woulduation authority.

last september the fdic authority adopted a rule requiring bank companies with total consolidated assets of $50 billion or more as well as certain nonbank financial companies that may designate as systemic to submit plans to regulators. these are the so-called living wills. with the joint rule final the fdic and federal reserve has started the process of engaging with individual companies on the preparation of their resolution plans. the first plans for companies with nonbank assets over $250 billion are due in july. section 210 of the dodd-frank act also requires the fdic to coordinate to the maximum extent possible with appropriate foreign regulatory authorities in the event of a resolution of a covered financial company with cross border operations.

also u.s. has foreign operations in dozens of countries around the world those are concentrated and a number of key foreign jurisdictions particularly inunited kingdom. our initial work has been encouraging. in particular the u.s. financial regulatory agencies that made substantial progress with authorities in the u.k. in addition to provisions relevant to systemic risk the dodd-frank has other provisions with direct effect on community banks. it made changes to the fdic's deposit insurance program which was implemented soon after enactment. the first of these was the rule to implement the provision to increase the insurance coverage limit to $250,000. the fdic also implemented the

dodd-frank act requirement to redefine the base use for assessments from deposits to asse assets. when this was implemented aggregate premiums paid by institutions with less than $10 billion in assets declined by approximately 33%. many community bankers have expressed concern about the dodd-frank act rules and other regulatory actions that would impact their ability to compete in financial markets. in response the fdic's undertaking a series of initiatives related to the future of community banks. we are holding a series of round tables with groups of community bankers in each of the fdic's six regions around the country. the division of research is undertaking a comprehensive review of the evolution of community banking in the united states over the past 25 years.

additionally i have asked the fdic's division of risk management supervision and division of depositor and consumer protection to review the examination process for risk management and compliance supervision as well as to review how to promulgate and see if we can improve in ways that benefit community banks. that concludes my oral statement. thank you. director please proceed. >> thank you for the opportunity to testify today as part of this panel of my colleagues. as the director of the consumer financial protection bureau i am committed to being accountable to you for how we carry out the laws and we like to have the chance to discuss our work with you. this is the 18th time that the bureau has testified before the house or the senate.

my testimony will focus on the areas in the letter you specified. asked about bank supervision program. we have been focused on recruiting and hiring the best team we could find with our focus on consumer protection. we are blessed with great talent. the former commissioner of banks in massachusetts leads our bank supervision team. the social director of the division of social practices leads our nonbank supervision team. our examiners are working to ensure compliance with federal consumer financial law and may seek corrective actions. we have met with many supervised institutions to see how they operate and how they approach compliance. we are engaged with state banking regulators to establish communication and share information to reduce compliance burden. we published our examination manual along with other procedures covering particular

products and services. on monday the federal prudential regulators released a memorandum of understanding that clarifies how we will coordinate our activities to minimize unnecessary burden and decrease the risk of conflicting supervisory directives. our responsibility under the law is to achieve even hand pd and reasonable oversight of both banks and nonbank firms that compete in the same consumer finance markets. we take a consistent approach to examining both using the same procedures for the same products and services. in addition to mortgage lenders, services and student lenders we will finalize a rule to examine debt collection and credit reporting industries as we develop our program further. the second topic you identified is my statutory role on the

financial stability oversight council. congress designated the director to serve as one of ten voting members. the u.s. consumer finance market represents loans and deposits and it is central to stability of domestic and global capital markets. because we share the responsibility of regulating with some of our colleagues our mutual participation furthers our efforts. participation also provides a broader vantage points on triggers and vulnerabilities that pose broader risks. i have found this to be valuable as we work towards a sound financial system that protects consumers and helps safe guard the broader economy against systemic risk. third you asked how our statory obligations protect. the consumer bureau does not

generally enforce the law in such bapgs. we have the authority to adopt rules that can effect community banks as well as larger banks. we will help community banks by our new oversight of nonbank firms. i have heard from community bankers who refuse to make a mortgage loan only to go down the street and get a loan from somebody else who did not require the same standards. once bundled into securities those loans crashed the financial system and the economy. consistent application of consumer financial laws will promote safety and soundness. the bureau is required to adopt new mortgage rules that protect consumers. many are intended to return to sound customer service, practices that are traditional at our good community banks.

as we develop these initiatives we know that one size does not fit all. when it makes sense to treat smaller institutions differently we pledge to consider doing so. we are implementing small business review panels on several mortgage rules and find input to be helpful in calibrating our proposals. when i became director at the beginning of the year i barely knew my colleagues on this panel. now five months later i have come to know and respect them all. our team is glad to be working with their teams and with the members of this committee to strengthen and support a vibrant financial system. i'm happy to answer any questions you may have. >> thank you. i would like to thank all of our witnesses for their testimony as we begin questions. i will ask the clerk to put five minutes in the clock for each member. mr. curry, it is clear from your testimony that jp morgan lacked

the proper control to mitigate such a large loss. was this a failure in risk management? if so what should the bank have done differently? >> in essence we believe that the issue is one of inadequate risk management within the office of the chief investment office. we have been focusing on potential gaps or deviations from accepted standards of risk management within that particular office and looking to see whether similar gaps exist in any other area of jp morgan's risk management architecture. >> mr. curry, the occ has dozens and dozens of examiners at jp

morgan. did your agency check the risk management and internal controls of all aspects of the bank including the chief investment office before this event? or did you miss this? and second while regulators are not in the position to review every single trade, what assurances can you give us that the bank regulators will be able to monitor situations where large trades done for hedging or other purposes can bring down a firm or have a systemic impact on the broader economy. >> one of the major focuses of our examination and supervision activities is risk management. we look at risk management in the entire organization and within key areas where there is a substantial risk facing the

institution. that process is intended to go across the entire organization in those key areas. in this particular case we are looking at whether there were gaps within our assessment of the risks and the risk controls in place. we are in the process of evaluating that on our on going examination. the point i would make in terms of our focus on risk management is that it is one part of the overall approach to identifying risks within the organization. as governor mentioned a key component of how we assess and mitigate risks in the institutions is the institution's capital levels and level of reserves and liquidity. nat case of jp morgan chase their capital levels and

liquidity are substantially higher than they were at the beginning of the fascial kriina crisis. they are more than sufficient to withstand the reported losses in this particular area. we are continuing to review as part of one of the two prongs of our on going review is what exactly transpired with the trading operation within the cio's office. and we are looking to make sure that there were appropriate limits and controls on those activities in that area and how they compared to other similar areas within the organization. >> it is important that wall street reform implementation is completed to enhance financial stability and reduce systemic

risk. just to be clear doesn't that seem to be that the jp morgan trading loss was systemic? do you agree? and what do you believe are the implications on the wall street reform rule makings that have yet to be completed? >> obviously the loss at jp morgan chase was a big loss and one that will effect share holders. we concur in his judgment that it is not about the solvency of the firm or the stability of the broader financial system. i think what is clear is that the lessons that we all learn from what happened at jp morgan chase will serve as important lessons into the range of dodd-frank implementation work to come whether questions about risk management or capital.

this incident under scores the need for us to pay attention to examples like this in order to learn those lessons both with. >> reporter: -- with respect to dodd-frank in limitation. >> are regulators better coordinated and prepared after wall street reform to deal with external threats to our financial stability and economic growth like a eurozone crisis, what steps are you taking in response to this crisis? >> i think there is no question, mr. chairman, that the existence of the financial oversight council has given regulators an opportunity to constantly monitor financial markets and the exposures of our banks and broader financial system to what is going on in europe.

the financial stability oversight council has spent a lot of time on europe and thinking through what its implications are and might be to our financial through what it might mean to the united states. the u.s. government has the capacity to share perspectives to work together in engaging a counterparts in europe to make sure that we are as well prepared and have thought through the various contingencies that might be necessary. >> governor tarullo, do you have anything to add to this? >> mr. chairman, with respect to european preparation, i would just say that one thing about the eurozone problems, they've been with us for some time, where we've been able to regularize a system of oversight of u.s. financial institution, exposure and activities in

europe. so, right after the first problems arose in may of 2010, on an adhoc basis, we began looking at these. over time we've been able to put into a system that allows us to check exposures of individual firms against aggregated data whether from supervisory sources, to make sure both we and the firms have a handle of what's going on. other than that, icon occur with what secretary wolin said. >> senator shelby? >> thank you. i think it's kind of a given here, from what i read and what i note, the stress test jp morgan went through and so fo h forth. i've been told that they would have to sustain losses 40 times -- in other words, 70, $80

billion to still be standing. is that right, governor tarullo? >> senator, in the stress test, what we did with the trading was to assume an instantaneous shock based on our very adverse scenario, which entail trading losses of $28 billion. we also assumed over the period of the stress test credit losses, the sum of those gives approximately the number you indicated. >> comptroller curry, tell us, walk us through from what you know what was going on at jp morgan. were they managing risks, making money, do a combination? everybody has to measure risk, but in other words what was really going on? you had people on site, right? >> that's correct. >> so, they took a position.

was that a position to manage something they had already done or could you explain it to us? >> that's -- >> complicated. >> that's actually the key question that we're trying to address, senator, really is what actually happen ed in this particular investment strategy. it's a very complicated investment strategy, both in terms of its size as well as complexity. we are looking to determine the actual strategy investment scheme was and also if there were any other factors that were driving that strategy, other than attempting to mitigate known risks in the bank's portfolio. >> whether it's the banking arena or some other arena,

especially in the area of derivatives and so forth, you take a position. somebody else has another position, right? >> uh-huh, yes. >> so, if you win, you're looking great. you're looking smart. if you lose, you're maybe not having a bad day, but you're not trying to take risk out of the market, are you? >> not necessarily. >> what are you really trying to do? for my perspective, i think banks ought to be able to take risk, manage those risks. the regulators ought to make sure that they know what's going on from your perspective and the fed's perspective of any huge risk they take, that it might endanger the taxpayer. a lot of us -- maybe not everybody, but a lot of us are worried about the taxpayer and bailouts and future bailouts. jp morgan, as strong as they

are, seems from your testimony and others on what we know was never in any danger if they lost $2 billion or $4 or what. that's a lot of money to me. and i guess it's a lot of money to them. but what did the comptroller's office know and what were you in control of? >> risk management first, senator. >> okay. >> number one, we're looking for the institution to identify and address poe tngs for serious risk within the organization. we're really not looking to eliminate all risk. if you did so, you wouldn't have a bank. i mean, the nature of a bank is to manage risk.

and to be profitable. capital is really to absorb those areas where risk is either unavoidable or occurs just because of the nature of the business. and in the case of jp morgan's national bank, which we supervise, this is ample capital, over $100 billion capital in just the national bank. not the holding company. within the actual supervision of jp morgan chase, we have 65 individuals who are a core team of examiners who are resident at the institution. on top of that, we are able to draw upon a considerable reservoir of skilled individuals with expertise and a variety of credit, market, capital markets and other areas brought in as a targeted examiner on an

as-needed basis. we also work in connection and in cooperation with the federal reserve system, which also supervises the holding company. we did begin to examine this, really, in april. we are, uh -- are -- interested, concerned, intensified during the month as losses increase, uh, at -- within the portfolio up to the point that the institution itself, uh, announced the significance of the losses that were incurred. since that point in time, we are -- our focus has been on managing and monitoring the bank's efforts to mitigate our

risk of that particular portfolio with the, uh, objective of ensuring that there's a soft landing and -- of that particular position, to minimize both risk to the institution and ultimately to the deposit and insurance fund. >> when will you -- when do you think you will finish your analysis of what really happen ed in all this? >> we hope to do that as quickly as possible and hope to use our findings to inform us of what potential implications there are for the other institutions that we supervise and our large bank, uh, institutions. >> thank you, mr. chairman. >> senator reid? >> thank you very much. mr. curry, you have 65 personnel

devo devoted to supervision. how many are in london? >> we have five individuals who uh, reside or house in our london office. >> and they're responsible for how many institutions in london? >> they're responsible for, uh, any national bank that has a global operation, especially with the presence in london, like a london branch office. >> so, how many would that be roughly? >> that would be -- my -- i couldn't give you the exact number, but half a dozen institutions. >> half a dozen. how common is it to have the risk office of a national bank located outside of the united states? >> in this particular case, the risk office is actually housed in new york where the global operations of the cio office are housed. from a supervisory standpoint, our focus is in supervising that and other global issues is really, uh,