>> i believe there are hundreds. >> hundreds. and it's across multiple regulators? >> right. >> when something like this pops up, are the channels clear anymore as to who you deal with and who's regulating what and who you need to be paying attention to? how do you deal with that? >> we are always going to treat regulators the way they deserve to be treated. whatever the system is, we have to deal with it. we have people who are signed specifically to deal with regulators, the fdic, occ, the fed, now cfpb and we deal with all of them. on this particular issue, the first three are all engaged. occ, fed and fdic. >> how much have your regulatory costs increased as a result of dodd-frank, volcker rule, whatever it is?

>> i estimated -- jpmorgan had jamie dimon testifying last week. we have solved some of our technical issues with today's coverage of the house financial services committee so we'll take you back live as the committee hears from the first panel a number of top federal regulators. jamie dimon testifying later this afternoon. back to live coverage here on c-span3. >> we would know and the cio office there has additional offices all throughout the country and the world who have additional offices all throughout the country and the world and is the expectation that all of the information is going to bleed up to -- i suppose that's the system. i think we see that's not exactly what was happening here. >> by way of background, the cia office is centrally located within the new york headquarters of the bank. there were trading activities that were conducted in the other -- in a handful of

locations including london. but in terms of the management controls, record keeping, key personnel that were predominantly within the new york office and that's where our focus has been. >> let me talk about communications between the five examiners in cases of these very large -- and i'm going to call them too big to fail institutions. what kind of controls do you have for your communications? do you use -- what are your protocols put in place since that was a major failure in 2008. i'll ask mr. alvarez if he has a comment on that. >> we have set up a various ways to communicate with other agencies. for large institution instituti supervisory colleges. we meet regularly to talk about issues of concern. the examiners in the field also

talk with each other. we talk with occ examiners at the national bank. we talk with the fdic. with fcc when there's a broker deal involved in the organization. we have actually quite a matrix of communication. >> you described a matrix of communication but even with a matrix of communication, nobody was catching it. nobody was seeing it. we know the hedge funders saw it eventually because that's at least the periphery that i read that's the indicator. you know, is communication really working? are you communicating as information not as robust and granular as it needs to be. >> to keep this in context, a bunch of the -- there were significant changes in the portfolio, the cio portfolio in the first quarter of 2012. those changes were very significant contributors to this

loss. as the company itself has mentioned, the reports that the company generated, the kind of review and risk management it had in place had serious flaws to it. we had access to that information but to the extent it was flawed in its own management didn't have a good handle on information and understanding the risk, that would make it more difficult for us as well. we have to rely on information that we get from the organization itself. if that's flawed, that's going to be a problem for us. >> thank you. let me say this. regular order would be when the second panel comes on to start over but in fairness to the members who have been here the whole time, at least on the republican side, i have no control over the minority, we're going to continue down the row. we're not going to come back up in fairness to all of our members. we'll continue down the row.

i want to acknowledge the loss of your mother. >> thank you. >> members of the committee express our sympathy and recognize you for five minutes. >> thank you, mr. chairman. it has come to light that jpmorgan chase changed its value a number of times over the past six months which led to its investment appearing less risky than they really were. are there penalties for failing to disclose this to investors and fcc? >> i think mr. dimon testified in the senate that they changed their risk models all the time. the area we're focused on and concerned about is the change with respect to the model they use for earnings release on april 13th that had the effect of understating the value at

risk. >> are there penalties? >> our rules do require that changes to the value at risk model has to be disclosed so part of what we're investigating is the extent of that disclosure whether it was adequate among other things. >> and if you conclude that basically the rules were broken? >> there could be, yes. >> so let me ask you, these penalties apparently were not enough to prevent jpmorgan from such activities. i just would like for you to explain to us how should these penalties be structured to deter such behavior going forward if that is the case? if that was the case? >> i think, first, we need to finish the investigation to see the full scope of conduct that potentially, if any, violates the federal securities laws and

then the commission would make a determination about what the appropriate sanction is to deter such conduct in the future and to remediate the violations. it's hard to say what that number would be if it's a penalty. whether there would be potentially a requirement they bring in a special consultant to r help rework their financial reporting controls and whether there would be other sanctions. we have a wide range of sanctions available to us but until we completed an investigation and understand if we have issues with a model not disclosed or we have risk management issues or other disclosure shortcomings or failures, it's hard for me to guess where we might land. >> thank you. chairman, trading among many factors contributed to the financial crisis in 2008.

opponents of the proposed volcker rule have argued that it will do more harm than good. in light of jpmorgan's loss, the proposed rule were delayed or otherwise scaled back, will other measures such as increased capital requirements and new controls be sufficient in themselves to mitigate the risks posed by proprietary trading? >> in the first instance that's not a choice for us to make. the law is the law and we have an obligation to implement it both in regard to the capital requirements and in regard to the volcker rule. we certainly agree the capital requirements are very important but the provisions of the volcker rule are also the law of the land and we have an obligation to implement those as well. >> do you believe that increasing capital requirements

and new controls will be sufficient? >> i think the provisions of the volcker rule particularly requiring the reporting and record keeping, the governance provisions relating to propo proprietary trading are really quite important in order to focus the attention of management and regulators on this activity and i think that would be actually a valuable complement to the capital and other prudential requirements of dodd-frank. >> thank you, mr. chairman. >> thank you. >> thank you, mr. chairman. mr. curry, the bloomberg article came out on april 6th. when did you have knowledge that there was a problem with this portfolio? >> the size and complexity of the portfolio as jpmorgan chase

became clear to us at that point in time. after that, we began to ramp up our discussions with bank management and our presence. >> what day would that have been? >> i believe it is around the 9th when i assumed office. >> april 9th you were having extensive conversations with management about this position? >> that's when we became aware of the potential significance of the situation. >> do you have recollection of when your agency began to have some concern about this issue? >> it would have been around that same time when the articles began to appear. again, because this was not in the broker dealer, we wouldn't have had people focused particularly on that. >> again, when the articles about the london whales started

to run, we do oversee and see daily the risk in the clearinghouse and they have some of these indices in there even this ig-9 is in there. >> in that same time frame. >> mr. alvarez? >> we were informed by the firm at the same time they informed the occ. >> i want to fast forward then to april 13th when mr. dimon said that this has been blown way out of proportion. this is a tempest in a teapot. did you find that comment interesting the fact that you were, you know, all of these regulators were activating some action that was stimulated -- did you think that was an interesting -- >> at that point in time we were still trying to determine the

underlying strategy and its ramifications to the bank's financial position. >> would you have called that a tempest in a teapot? >> i would not have had the information at the time to make a conclusion one way or the other. >> ms. shapiro, do you have a comment on that? >> it's part of the context for the review. if you look at the fact that the number didn't change for earnings release and by the way var is not required to be released in a earnings release. if you choose to speak to it, you must speak truthfully and completely. the fact that the var number didn't change much at all from year end to earnings release, it sort of is part of the context of whether it truly was a tempest in the teapot or there was more there. when the q-1 statements came out on may 10th and we saw that var

doubled, it's part of the context of how you view the statements. >> i think particularly in your area of oversight, the statements ceos make are relevant. >> they are always part of what we look at when we look at issues exactly like this, yes. >> and so i can understand if you are a ceo of a company and you have some bad news out there and you are trying to tamp that down, but there's also a fiduciary responsibility if we're going to talk about disclosure and transparency for whatever information and statements are coming out of that organization to be accurate or a fair reflection. would you agree with that? >> that's right. if you choose to speak, you absolutely must speak truthfully and completely and not allow yourself to leave any kind of misleading impression from the information that you're putting out. >> is there a certain amount of

duty whoever the spokesman is whether it's mr. dimon or cfo or whoever -- makes sure that the team thinks this is an accurate statement? >> well, i don't know about their internal processes for preparing -- >> if you are going to make a statement say on behalf of the s.e.c., don't you ask your people is this a fair representation? >> yes, i do. >> so there's a certain amount of duty to do that? >> well, again, the duty under the federal securities law is to speak completely and truthfully. how people arrive at what they decide is a truthful and complete statement is a matter of their internal deliberations and discussions i think. >> thank you. >> thank you, mr. chairman. mr. chairman, first i would like to point out that anybody who is interested in breaking up these large institutions should sign on to hr-1489 which would rei

reinstigate the bill which i opposed repealing. the beasts of wall street have come into existence. anyone that wants to or some other idea on how to limit the size, i agree with that concern. to the panel, i would just like to say that the comments for transparency are appropriate but in preparing for this hearing, this is very complicated stuff. very difficult stuff. i try to read as much as i can. the problem is on this particular hearing, all i could get is news reports and the only news reports i could get were all based on aassumptions and educated guesses. there is not enough transparency from your agencies to allow outside people to make a comment on what might have happen. i would encourage you to if you can't come to a conclusion, at

least whatever facts you unveil to yourself, make them public as soon as you can so that the greater public can engage in a discussion which will enlighten our thought as to what might happen. i have so many questions in five minutes. mr. curry, i'll start with you. this was only a $2 billion item. is there anything that you have learned thus far that would have limited it to just $2 million? could it not have been a $20 million loss? >> part of our preview process now is to look at the unwinding of their position and our review process along with the other federal bank agencies. >> could it have been 20 billion? not necessarily this one but anything to prevent it? >> that's the concern from a supervisor stand-point is that this is the result of an apparent lapse in rigorous risk management. >> it could have been 20 billion? it could have been 200 billion?

>> no other institution and other circumstance, possibly. >> is there anything in regulation that you found thus far that would limit this loss only to jpmorgan? >> he surveyed the other large banks that we supervise and we do not believe that any of those -- >> but they could have? >> we believe they do not engage in similar -- >> but they would have? >> that's really why -- >> i don't know why you are so resistant. i'm not after you. you would know it if i were. >> we view that as being a very serious issue and that's why it's the focus -- >> it could have been a $200 billion item and any large bank and other counterparties which is my concerned. you found no one else engaging in this activity thus far but that's the biggest question here. not necessarily what happened in this instance other than the way it might enlighten us or educate us as to what could happen.

i'm asking to be sure that when everything is said and done it's not just a focus and not just focused on one instance, one event that lost $2 billion for a bank that could apparently handle it. it's whether it could have shaken the system again. are you confident yet that what you have found and what your reaction might be would be to tell us that the system is now sound? >> we do not believe that the system is at risk from this situation. we are -- that's why, again, we're focusing on making sure that all of the institution wes we supervise -- >> thank you. is the system found based on what you have found thus far? >> i think the system is sounder than it was but we have to get title 7 regulatory regime in place that will give us access to the kind of information that we need and the public needs to impart --

>> thank you. >> i think the american public still isn't safe on these roads until we get transparency and rules of the road in place and that's why i made the analogy of my daughters and keys to the car. we're bystanders to some taking on excess risk in '08. >> based on what you found in this instance -- i understand -- in this instance any indication that what happened here might expose not necessarily by jpmorgan but anyone else a risk to the system? >> it still exposes risk broadly in our regulatory system that we're not covering london and credit derivative products that we haven't finished the task. >> your testimony was very important on page 9 if i recall. i want to read back to you what you said because i think it's good. the whole london thing has been bothering me. we've been chasing a lot of mf global stuff and seems all about london. >> your time is expired. read his statement.

>> the statement was very simply that section 722-d of dodd-frank that says that if it has a direct and significant connection with activities in or effect on the commerce of the united states, you do have oversight. would you agree that statement allows to you regulate things that go on overseas? >> thank you. five minutes. >> thank you, mr. chairman. interesting discussion we're having this morning from the standpoint that for the last four or five years the american public finally found out what actually goes on in banking and financial services institution. they manage risk. that's how the whole system works. a lot of folks just didn't know what went on behind the doors and in boardrooms and offices of banks and financial institutions but now they do. they take risks. sometimes they win. sometimes they lose. so today we're discussing an entity that took a risk and

lost. and i think that the things we're working on and you, ladies and gentlemen of the panel here, have to find a way to walk the fine line to keep from taking all of the ability to take risks from these institutions otherwise perhaps they won't do investing and the whole system collapses or stops or find a way to pass that risk on to other entities, in other words the taxpayers, which is what too big to fail doctrine does, which is not the way to go either. it's interesting the fine line you are trying to walk. i appreciate that. i thank you for your service and for trying to do that. mr. curry, to follow-up on gentleman from california remarks earlier in regards to capital. you made comments in your testimony that the tier one common capital of larger banks gone from 5.2% to 7% now. there are rough figures that i got from your testimony or mr. alvarez here, it looks like tier

1 capital -- it was your testimony, 5.7%. is that accurate? >> yes. >> they are below average, is that what you're saying? >> no. i'm sorry, they meet existing minimum capital requirements. >> the tier 1 average is 7% for the same size. >> the testimony refers to bank level capital and bank holding company capital and that may be part of the confusion. >> okay. all right. are they really capitalized in your judgment? >> yes, they are. >> what was their capital account prior to -- back in 2008. >> i can't recall offhand. that's been the objective of our heightened supervision program is to increase the level of capital and put it in reserves. >> by increasing our capital,

they made more money. have they done that by taking extraordinary risks or through practices of running their operation? >> we expect banks to be in the business of taking manageable risks and having effective internal controls over those material risks within the organization and then ultimately we look to capital as being the cushion for those risks that occur. >> okay. right now the investment banking portion of jpmorgan is underneath their main bank, which would be covered by the fdic insuran fdic insurance, correct? >> jpmorgan is an fdic insured bank. they are a separate affiliate. >> their investment bank is

separate so there are no fdic insurance dollars at risk with this particular activity that took place? >> i believe the activity in this case, congressman, was in a branch of the bank itself and not in the investment company affiliate. >> a lot of banks have a lot of branches. some branches are covered and some aren't. were they part of the umbrella under the main bank and therefore deposit insurance exposed? >> yes. >> they were? >> yes, sir. >> so in other words so if this had gone bad and caused a major problems, insurance funds would have had to kick in? >> yes. >> what's your opinion of that? is that of grave concern to you? >> i think it's a serious question that's raised. it's why the inquiry is going forward. >> we have a situation with the

banking structure we have right now that's a real problem from the standpoint that you have big entities with enormous exposure. do you feel they are paying their fair share based on risk they are taking and exposure to the fund compared to the rest of the banks who don't do this? >> in terms of deposit insurance premiums, is that the issue? >> right. >> for these large institutions we do have a risk based deposit insurance system specifically targeted for the large institutions. it is true that the kind of trading activity that occurred here is taking into consideration in setting the deposit insurance premiums for these large institutions. >> my time is expired. thank you. >> mr. lynch for five minutes and then mr. pierce will question the panel and at the conclusion of his questions, we'll bring the first panel --

we'll dismiss the first panel and excuse you and go to our second panelists. mr. lynch for five minutes. >> thank you, mr. chairman. i want to thank witnesses for attending and helping the committee with its work. if not for the exposure to the taxpayer, we probably wouldn't be here. i do want to note that starting back in the fall of 2008, jpmorgan and other wall street banks received about $700 billion from the american taxpayer. jpmorgan chase itself received 25 billion in those t.a.r.p. loans. all told the amount of emergency federal reserve lending support to jpmorgan exceeded $456 billion and i note that in november of 2011, bloomberg article estimates that the bank made nearly 458 million in profit from those emergency

loans from the fed. in addition, jpmorgan chase has access to fed discount window and depository base some of which funded these proprietary trades which is fdic and taxpayer insured. so there's a lot of exposure here for the taxpayer and that's why it defies logic that we would allow an institution with that type of support from a taxpayer to act in this way. i enjoyed your opening remarks. i thought your testimony was great. i have two girls myself. so i have empathy for you in giving your car keys out. i do note that in mr. dimon's testimony earlier in the previous hearings on the senate side, we basically confirmed those reports that these trades

while they were managed in the new york office, they were executed in jpmorgan's london office and some were executed in the cayman islands as well, is that correct? >> i don't know about the cayman islands except i know in other circumstance, bear stearns was in the cayman islands, there were other circumstances. jpmorgan chase chief investment office trades as i understand executed into and out of london in the branch and to representative's question, the deposit insurance fund we heard was at risk. >> okay. we also heard prior testimony that this was in discussions of legislation that would limit margin and clearing requirements for overseas derivative trading that a substantial percentage of the derivatives business has

moved to london or is in the process of moving to london. is that correct? >> well, they are very significant operation out of london and they operate as a branch in many countries and they have advocated to this commission that that not be covered by dodd-frank reforms. i have a different view. i hope the commission will vote out to get public comment this thursday and that we don't in essence create another london loophole. >> that's what i want to ask you about. how does your oversight toolbox differ when trades are executed through london opposed to the u.s.? what are those london loopholes that you have described? >> congress has given us some discretion to interpret a provision of the act 722-d as to where the reach of the act and if it has a direct and significant effect on the commerce or activities here in the u.s. than it