the office of investment, correct? >> there was a change in the office of investment in january, a new model was put in place and we took it out and put the old model back in -- >> why didn't you change the model firm-wide? >> well, the firm has hundreds of models. this model was very specific to that synthetic credit portfolio. >> let me get back to my question with occ. were they aware of the change? did you bring it to their attention? >> i don't know. we generally tell the regulators what they want to know. they often look at models. some models they actually do in extensive detail. i don't know particularly in this one. >> according to the proxy, if the chief investment officer's responsible for measuring, monitoring, reporting and managing the firm's liquidity, interest rate and foreign exchange risks and other structural risks, which basically is essentially at least the implication is their job is risk management, not generating profits by investing deposits, it seems that their model was loosened up

considerably giving them opportunity to engage in more risky activities. is that your conclusion looking back? >> half. in january, the new model's put in place that allowed them to take more risk and it contributed to what happened. we don't as of today believe it is done for nefarious purposes. we believe it was done properly by the independent model review group. there may be flaws in how it was implemented but once we realized that the new model didn't more accurately reflect reality, we went back to the old model. >> let me ask, it appears from looking at some published reports that essentially, these credit default swaps were first made to protect your loans outstanding, particularly in europe, and that was in the 2007-2008 time period, which is a classic hedging. you have extended credit to corporations, those credits go bad, you want to be able on the other side to ensure yourself against that.

but then in 2011 or '12, at some point the bet was switched and now you started rather than protecting your credit exposures, taking the other side, selling credit protection, which seems to me to be a bet on the direction of the market unrelated to your actual sort of credit exposure in europe, which looks a lot like proprietary trading designed to generate as much profit as you could generate, which seems to be inconsistent again if this is simply a risk operation and you're hedging a portfolio. how can you be on both sides of the transaction and claim that you're hedging? >> i think i've been clear, which is the original intent i think was good. what it has morphed into, i'm not going to try to defend. under any name, whatever you call it, i will not defend it. it violated common sense, in my opinion.

i do believe the people doing it thought that they were maintaining a short against high yield credit that would benefit the company in a crisis. i think and we now know they were wrong. >> but that leaves us in a situation of how do we build in, build in rules and regulations that prevent as you would say, well intentioned extremely bright people from doing things that are very detrimental? first of all, you've lost several billions of dollars which this activity was located in the bank, and frankly, it was deposits that are insured by the federal government, and second, you've lost significant amount of your market value to your shareholders, and the irony to me is that if there was a good voelker rule in place, they may not have been able to do this because it clearly doesn't seem to be hedging customer risk for even the overall exposure of the bank's portfolio. >> i don't know what the voelker rule is. it hasn't been written yet. it's very complicated.

it may very well have stopped parts of what this portfolio morphed into. >> so there is a possibility that could have avoided this situation? >> it's possible. i just don't know. >> thank you very much. >> senator? >> thank you, mr. chairman, for having this hearing and mr. dimon, for being here. i wish we had had these kinds of hearings prior to the passage of financial regulation and i think one of the good things that's come out of this is a lot of folks on this committee have really focused in on issues that are relevant and again, i think that part of this has been positive. mr. dimon, you mentioned the biggest risk a bank takes is making loans, is that correct? >> yes. >> that is the largest risk a bank -- and you have $700 billion in loans outstanding, is that correct? >> yes. >> what would happen in an institution like yours if you had $700 billion in loans, your

riskiest business you do, what would happen if you didn't have the ability to hedge that risk in ways that made sense, not the way you did it? >> i think there are two things. one is smaller which is you might reduce the amount of risk you're taking -- >> less loans? >> you might make less loans just under the circumstance that if things got bad, you could still handle it. that might change the price of loans in the marketplace if all banks did that. also, i think more than that, you wouldn't be able to protect the company from a systemic event. we want to be able to protect jpmorgan from systemic events. we know they happen. so to me, i want to survive good times and bad times. jpmorgan's balance sheet and capital allowed us to do good things in '08 and '09 for clients. if we couldn't protect ourselves, i think we would have had a hard time serving our clients. >> so i think you made it clear and numbers of people in the last hearing were talking to regulators about why they couldn't catch something like this, there's really no way for a regulator to catch this type of activity, would you agree? >> it could be very hard for

them to do. i would look at regulations like you want to have continuous improvement. always get better, clarity, cleaner, but i think you can't -- it's hard to have unrealistic expectation you just capture things like that. if you're trying to set up rules to capture this -- >> a banker is always going to be ahead of a regulator, basically. you're giving them the information they're using to regulate so it's not really realistic to think a regulator is going to catch this. a lot of people think that, as a matter of fact, one of your peers at one of the large, large institutions was in yesterday talking about the fact that dodd-frank just really missed the mark. we had this huge amount of regulation taking place at the institutions and what we should have done is looked at regulating the markets themselves. much of what happens in the markets takes place outside of the regulated entities. let me just ask you this question. is dodd-frank more than marginally made our banking system safer? >> you know, we supported some

element -- >> i know what you supported. has it made our financial system safer? >> i think parts of it in conjunction with higher capital liquidity, the financial system is safer today than it was in '07. >> i'm talking about -- i understand we have larger capital and all banks boards are causing that to happen. i'm talking about the regulatory regime that congress put in place, has it made our system safer? >> i don't know. >> okay. one of your peers, not quite as well known as you, believes not. as i look back, we looked at the 20 largest institutions in the world. since the 1990s, the japanese meltdown that occurred, 16 of the 20 are either government owned or have had taxpayer money injected into them. and so you look at what we've done and many people obviously

are coming out with all kinds of models now. you've got the bear model, glass-steagall is being talked about. would you share with the committee the purpose of a highly complex institution, what societal good an institution like yours is and what our financial system would be like if we did not have these highly complex institutions, and secondly, you're obviously renowned, rightfully so, i think, as being one of the most, you know, one of the best ceos in the country for financial institutions. you missed this. it's a blip on the radar screen. but are these institutions today just too complex to manage and the fact that 16 of the 20 have had injections, what does that say about a highly complex institution like yours? >> so we have a hugely complex economic ecosystem from small companies to large companies. there are 27 million businesses.

1,000 of the top businesses employ 30 million people. the other folks in the private sector employed by all of the other 26 million companies or so. there's a place for large companies and for small companies. for people like us, we bank some of the largest global multinationals in america and around the world. we can bank companies in 40 different countries. we do trade finance. we give inter-day lines of billions of dollars to some of the biggest companies. we can do $5 billion revolvers or raise money for america's fortune 100 companies in day or two when they need it to do something. there is -- we are the largest banker to banks. we extend something like $23 billion of credit to smaller banks and they need some of that. there's a great role for community banks. we can't do all the things that community banks can do in their communities. i look at it, you need all these things. there are some negatives to size. if size brings your economy scale, diversification, our

diversification was a source of strength in the crisis. it was not a source of weakness. it allows you to invest huge sums of money in data centers, cybersecurity, some of the things you all want us to do. there are some negatives to size. greed, arrogance, hubris, lack of attention to detail. but if you do a good job, your clients are being served and you win their business. so if we weren't doing some of these things for the large global american companies, somebody else would. that's all. these are services they need. they buy them because they need them. they don't buy them because we want them to buy them. we provide huge credit lines to them. >> my last question. you believe that a highly complex institution is necessary and if you weren't doing what you were doing, other people in the world, some other place, would be. you also are unsure of whether dodd-frank has made our system any safer, especially at the top level. we're here quizzing you. if you were sitting on this side

of the dias, what would you do to make our system safer than it is and still meet the needs of a global economy like we have? >> the biggest disappointment i've had is that we never actually sat down, republicans, democrats, businesses and had real detailed conversation about what went wrong, what needs to be fixed. to focus on what actually needs to be fixed. we still haven't fixed the mortgage markets. which is critical to the united states of america. we still haven't fixed some of the other credit markets. the markets have already fixed a lot of things. there are no cmbs, no subprime, no off-balance sheet vehicles. we could have a great financial system. the american business machine is the best in the world. it is the best in the world. we are all blessed to have it. we should focus on getting it working again instead of constantly shooting each other all the time. >> i hope we'll do that. mr. chairman, thank you for calling the hearing. thank you for being here.

>> senator menendez. >> thank you, mr. chairman. you know, i listen to this and i paraphrase shakespeare, a hedge or not a hedge, that's the real question. and it seems to me that you call these trades that lost anywhere between $2 billion and $4 billion economic hedges, a tempest in a teapot which i now understand you regret, and went on to say that it morphed but really, a hedge as i understand it doesn't create a loss without a corresponding gain. that's why you're hedging. and what seems to me that happened here is that you were pursuing a synthetic loan portfolio of selling cdss which in essence was a toxic instrument that caused a big part of our challenges of 2008, the crisis of 2008, and so

really, you know, when you reduce a hedge or hedge a hedge, isn't that really gambling? >> i don't believe so, no. >> so this transaction that you said morphed, what did it morph into? russian roulette? >> into something i just can't justify that was too risky for our company. >> that is the real concern here. too risky for your company, which is one of the nation's finest largest well capitalized banks, if it's too risky for your company, what stops it from being in the future too risky where you lose not $2 billion to $4 billion but $50 billion, create a size that ultimately creates a risk on the bank that takes that bank into the possibility of a run and then ultimately becomes the collective responsibility of each and every american? that's what we're trying to prevent here. so i've heard you talk about the

fortress balance sheet and i'm glad to hear you say to senator schumer that we should take comfort that banks are more collateralized but in saying so, one way to think about this is i wonder what your views do you regret calling the efforts to require banks to hold more money quote, un-american, and quote, putting the nail in our coffin. today you cite the fortress balance sheet of your bank as a way to prevent against the challenges, yet you railed against us when we were in fact trying to pursue greater capitalization of these banks. is this a regret you have of those comments then? >> no. i don't think what you said is true. i supported parts of regulation and reform. i support higher capital, higher liquidity. we support oversight committee. we support standardized derivatives going to clearing houses. we supported proper transparency. we supported a lot of the things that you requested. we did not fight everything.

when i mentioned the anti-american thing, i was talking about between dodd-frank and basel, things which were being skewed against american banks. american banks can't have preferred stock like foreign banks can have. american banks can't do qualified mortgages. >> did you not specifically say as part of your un-american comment that the requirement for banks to hold money, more money, was un-american? >> i did not. >> well, you know, i would be happy to look at that again. i think you might want to review that. because what you criticized then, and what your bank has been lobbying extensively against is the very types of protections that at the end of the day, can guarantee that the american taxpayer doesn't become responsible. i think about the fortress balance sheet you talk about and i would like to remind you that

fortress balance sheet has a moat that was dug by taxpayers to the tune of $25 billion in bailout money and more than $450 billion in loans from the fed, so it seems to me that the american people are a big part of helping to make your bank healthy, and the one thing that they would seek in return is to ensure that you're not working against the very essence of what are legitimate efforts to control the risk so that you can prosper and your shareholders can prosper but at the same time, it doesn't become the collective risk of the taxpayers of this country. do you not think that's a fair ask of the american people? >> i want a strong financial system like you do. we have supported a lot. there are thousands of rules and regulations. we are not firing them all. we are giving informed advice on some of them. there are some we think don't make sense and we think we are

entitled to tell you the things we don't make sense. >> you're entitled to tell us the things that don't make sense. i also think that the american people after making major investments in your bank and other institutions are entitled to ensure that they don't have to reach into their pocket again. >> senator demint? >> thank you, mr. chairman. thank you, mr. dimon. i really appreciate you voluntarily coming in to talk with us. it is important that we talk about things happening in the industry. i think it will advise us, help us and as we look forward and hopefully it will contribute to a best practice scenario in the industry and i appreciate your emphasis on continuous quality improvement. we can hardly sit in judgment of your losing $2 billion. we lost twice that every day here in washington and plan to continue to do that every day. it is comforting to know that even with a $2 billion loss in a

trade last year, your company still i think had a $19 billion profit during that same period, we lost over $1 trillion. so if we had a claw-back provision, none of us would be getting paid here. so the intent today is really not to sit in judgment but to maybe understand better what happened. my concern, and some of the questions have been very helpful, as you can tell, there's a temptation here every time something goes amiss that we want to add a regulation and we've surrounded the banking industry with so many regulations and we still seem to have problems here and there. i think we do need to recognize that you are a very big bank, the biggest in the world. you've got very big profits. periodically you're going to have big losses. we need to look at that as part of doing business but also, in the context of making sure as

the senator just said that we don't create additional risk for the taxpayer, which you appear to be in much better fiscal shape than we are as a country. we know risk is required to make a profit. you're dealing with a lot of capital that you have to put to work which certainly is going to experience profits and losses and generally, you've done pretty well. but i do want to follow up on senator corker asking about the dodd-frank regulation which a lot of us are concerned about. i think a lot of us are frustrated bank managers and want to manage your business for you. as i mentioned, we're not capable of doing that for what we've been given to manage. but i would like to come away from the hearing today with some ideas on what you think we need to do, what we maybe need to take apart that we've already done to allow the industry to

operate better, and at the same time, not put the american taxpayer at risk. i'm really honestly looking for some ideas as we look look over and hopefully in a position where we can make some positive changes. >> the only real suggestion i have is i believe in strong regulation and not always more. it's not more or less. it's good. what we set up was a system with more and more regulators. we don't know who has jurisdiction over many of the issues we're dealing with anymore. so when something happens we're dealing with four or five different regulators. i would prefer a simple, clean, strong regulatory system with real intelligent design and that's not what we did. we created a complex, hard to figure out who is responsible. no one could adjudicate between the regulatory agencies and it's not clear who has responsibility or the authority. >> and a lot of industries that i've worked in, they get together as peer groups to

evaluate best practices and share information with each other and is that something that you regularly do with your peers and other banks around the world of how you deal with risk and how the committees should work and what failures are? is that going on in a way th that -- >> we used to do more. regulators constantly ask for feedback and rules. we send them a lot of analysis and detail and there's less collaboration among banks and regulators and legislators than there used to be. it's more adversarial. >> the laws and regulations are not necessarily improving things and some of the things you've done voluntarily and other banks like capital requirements, i think a best practice -- if we could do anything to encourage the industry to develop a lot of its own voluntary rules, that would guide us a lot better so i guess if i could just leave you

with any one thing, if you could come back this time next year and talk about how the industry has put together a large scale best practice committees, that would help us keep banking as a private enterprise rather than as a government institution. thank you. thank you. >> senator brown. >> thank you, mr. chairman. thank you, mr. dimon, for being here today. you have 19,000 employees in the columbus area who are also my constituents so we have a joint interest in your business running smoothly. i don't want to see them losing their jobs. i have five minutes as others and if you could possibly give a yes or no answer when appropriate or short answer, i would appreciate that. to start with and the chairman touched on this earlier, if you could just give a yes or no, did you personally approve of the

chief investment officer's trading strategy? >> no. i was aware of it but i did not approve it. >> did you monitor the chief investment office personally? >> generally, yes. >> okay. thank you. last week i asked at a hearing about these issues, a series of questions of the occ about their oversight or lack of oversight of the trades in question. i finally got their answer this morning. their response was, okay, but a bit inadequate. they have five examiners in london who divide part of their time examining your operations, the portfolio of assets in question is reportedly about $200 million, which is bigger than the vast majority of banks in the united states as you know. in april one of your executives told investigators that trades in question were transparent as part of our normalized reporting. the occ letter says that

examiners were unaware of the level of risk occurring at your chief investment office until april. here's my series of questions. was the occ told about the trades taking place in your cio office prior to the april 6th media reports? >> we try to be very open with regulators and we give them reports. they do get some reports. we give them what they want. we give them the information they want. in this particular case, i think that we were misinformed and we have been misinformed. the mistake we made, we passed to them but the second we found out, the first people we got on the phone with was our regulators to explain we have a problem. we want to describe it to you. of course they've been deeply engaged since then. >> that was april 6th. april 13th -- thank you for that answer. april 13th earnings call, were they told about trades prior to the earnings call? was occ? >> i don't know. they get some of our reports. we probably had them -- since we were misinformed we probably

continued to misinform them. the important thing is once we found out, among the first people we called were the board and then the regulators and probably not even in that order. >> the issue is partly your side, partly occ side. do you know if occ inquired about trades as regulators? the five regulators or maybe regulators back in new york, did they inquire about the trades prior to the earnings call? >> i don't know. >> at what point -- can you tell us at what point did occ take steps to challenge the trades? >> i think the second that they understood the significance of the trades, they started to challenge it every day. they continue to. >> five investigators in london enough? >> i don't know. this day in age, they get reports from london and they can

do it by telepresence so physical location isn't as important. i should point out by the way, the 19,000 employees in columbus, serve global clients. they serve 30 million americans. largest middle market lender. a lot of middle market companies. they innovate. we run call centers there. they process credits cards which are shipped around the country. those employees are not just doing ohio based business. >> i appreciate that. a couple other points. since 2007, your chief investment office grown from 76 to $376 billion. your activities were not considered to be high risk but they go on to say that a similar level of activity or situation large hedges that are illiquid and complex is not present in other national banks and other banks don't conduct activity to the extent in size or complexity that jpmc has in this situation. should occ have been more

focused being trades were larger than any other banking system? >> i think we should have. >> if your bank didn't have 2.3 trillion in assets, would your cio need to be that 370 billion? >> most of that represents deposits and a lot of that increase was because we bought wamu and had more cash in the door. i assumed you wanted us to buy wamu and we've had 1,000 small business bankers in the states where wamu was. investing in assets and conservatively other than this one thing is what we do. >> senator corker made a statement a moment ago or offered the assessment or question or observation, i'm not sure exactly where he was going that just raised the possibility

that jpmorgan chase may be too complex to manage which also begs the question is it too complex and too large to regulate. i want to lay out a couple and then finish, mr. chairman. jpmorgan chase in 13 years quadrupled in size from 767 billion in assets, 13 in 1999 to 2.3 trillion today. there are six americans banks that are 800 billion and above. over the last five years alone, you've grown by 400 billion apart from what you just cited. this case demonstrate that in a practical matter neither you or occ could monitor what was happening at a $370 billion chief investment office that if it were standing alone would be the eighth largest bank in the united states. when you have a $2.3 trillion bank with 559 subsidiaries, executives and regulators it appears from listening to you and your comments from watching what's happened and talking to regulators and seeing the occ response, it appears executives

and regulators simply can't understand what is happening in all of these offices at once. it demonstrates to me that too big to fail banks are frankly too big to manage and too big to regulate. mr. chairman, i yield back. thanks. >> senator johans. >> thank you, mr. chairman. mr. dimon, thank you for being here today. i have listened to the various questions about the trade and i think to summarize everything, you've acknowledged definitely it was a dumb move. the loss is unfortunate. you apologized for that. you walked us through that. i would like to ask you some things at 20,000 to 30,000-foot level if i could. starting out, how many investigators do you have on site in your organization from