that's the debate that's going on as an interpretation of a very critical part of dodd-frank. i believe to answer the question these would be direct and significant effect on u.s. commerce or activities. >> thank you. one last question. i have a minute left here. on may 18th, i read a 2012 morgan stanley issued a research note estimating that the jpmorgan chase losses could reach as high as 5.2 billion along with the report also contains some analysis of how trading losses might have occurred. this is assuming they were right and there is a limited amount of information on this. this is assuming it was the cdx that you mentioned before which is a more standardized derivative that is approved for clearing in the united states and europe. there are estimates that losses could reach as high as 5.2 billion. do you think that's somewhat

accurate or not? >> we're still reviewing that with our examinations at the bank the scope of the potential losses but our focus is to monitor the de-risking of their position. >> thank you. >> i was trying to get an estimate whether $5.2 billion they say is accurate or not accurate. simple yes or no. >> mr. lynch, let me say this. no one knows what the loss is going to be. >> that's why we have witnesses so they can testify and not so you can answer for them. >> your time is up. mr. pierce -- i mean, if you know how much the loss will be -- >> that's a matter we're still reviewing under our examination activity. thank you. mr. pierce? >> thank you, mr. chairman.

mr. alvarez, if we'll look at derivative trading and we're going to prioritize the risk that these major firms face, would that particular activity be in the middle or at the top? is that a scary, risky thing or kind of not very risky? what priority should we be looking at when we consider derivative trades? >> i'm not sure what priority congress wants to -- >> i'm saying you. you're in charge. we simply oversee. you are in charge of risk. that's what you say. >> i think from our perspective we're taking two high priority approaches. we think it's important for firms to have good risk management -- >> my question is not that. my question is derivative trading itself, is it high risk? >> it can be. >> so it can be high risk item. that's all i'm trying to

establish. >> mr. pierce, allow the witness to answer the question. you are stepping on his answer. >> i have five minutes and if he's going to skew off to the side -- >> he's trying to answer your question. >> my question isn't what they're doing with risk relation. it's priority based -- it's the difficulty of regulating derivatives was my question. that's what i'm going to go to next is you guys are the supervisors in charge. that's the consolidated supervisor in charge of people who are regulating the activities and so i see mr. curry says that he's got people 65 people on location. these are not just regular people. these are people with 20 more years of experience, skills in key risk areas, teams of ph.d. economists and he identifies in the next paragraph that examination teams have three obje objectives, one of which is key risks.

derivatives would be a key risk. they are very problematic. my question is with this 65 regulators on site, would you know the name of the one who monitors trading of derivatives? you're the guy in charge. you. federal reserve. you say so in your testimony. >> no, we are not the one in charge of the occ. we are consolidated supervisor. we supervise the unregulated portion of the holding company and its role of consolidated activists but specific activities in the national bank, those 65 examiners you're talking about -- >> mr. curry, would you have a name of who is in charge of the derivativ derivatives? >> we operate supervision policy where we have a resident examiner in charge of the institution. that individual allocates responsibility for individuals who examine in particular areas of the bank. that can change over time.

it can also be the result of someone being brought in. >> do you have a name of who was in charge at the time you were discussing earlier during that time of early april? >> not at the moment who was in charge of looking at the derivatives portfolio. >> mr. chairman, my point is that we have 65 people who are top people according to your testimony and we have this stuff going on. they are on site in order to pay attention and yet i hear from mr. alvarez that we're concerned with changes in the portfolio during that period of time. what are they doing? are they sitting here watching? that's what they were doing the s.e.c. and cftc with mf global while taking money out of customer accounts and not saying anything or raising an alarm and here you are saying you are starting an investigation and i thought that's the reason you had people on location in order to watch what's going on. you have 65 people. you say in your testimony that key risks are what you're monitoring and yet mr. alvarez finds out you didn't call and

tell him. he's alarmed with changes. what are we doing here? why do you have people on location? at least we are finally worried about -- seeing recent losses and that's revealing certain risks. the entire nation is aware of those risks. what are we doing if you are supposed to be regulating? you have on-site teams and now we are starting an investigation and the investigation should be that you are talking to your people who are on location to find out if they're doing their job or sitting there with feet on the desk drinking coffee. from this side of the table, we ask you all to do this and yet i come here and i read all of this testimony and it's all kind of just angling toward the same thing. nobody is really in charge. nobody is really supervising. we're finding out after the fact through press releases or whatever. this gets very frustrating from our point of view. >> i understand that,

congressman. that's part of our review process to see what went wrong in this case and how the occ can better perform its duties. >> thank you, mr. chairman. i yield back. >> thank you. the chair thanks the panel for the testimony and the chair notes that some members may have additional questions for this panel which they may wish to submit to writing. the hearing record will remain open for 30 days for members to submit written questions of these witnesses and place their responses in the record and as the witnesses have all said, this is an ongoing investigation and that was one reason that we delayed our hearing until at least more information can be gathered and i think as mr. curry has said, some of the reporting was granular and it is not appreciated within the firm.

it would be pretty difficult to determine some of these things. the panel is dismissed. >> if you wish to go out this way, you're welcome to go out through the side door.

>> mr. chairman, can we ask people who are not needed to move. if people get outside of the door, they're blocking the door. we have to get mr. dimon. would people at the door, treasury department officials please move outside.

>> ryan, let mr. andrews maybe find a place to sit. . >> thank you. the chair wishes to remind all our guests that manifestation of approval or disapproval including the use of signs and placards is a violation of rules which govern this committee. the chair wish to thank our guests in advance for their cooperation in maintaining order and decorum. our second panel is made up of one witness. the ceo of jpmorgan chase, mr. dimon. and, mr. dimon, you are

recognized for five minutes but maybe if the cameras will take a picture and then sort of exit. mr. dimon, you are recognized five minutes. we welcome you to the committee. >> thank you, mr. chairman. chairman baucus, ranking member frank and members of the committee, i'm appearing today to discuss recent losses in a portfolio held by jpmorgan ch e chase -- >> could we get him to pull the mike closer. >> reporter: chief investment office. we are still reviewing the facts and i will explain everything i can to the extent possible. the six lines of business provide array of services. these include deposit accounts, loans, credit cards, mortgages,

capital market advice, mutual funds and other investments. let me start by explaining what the chief investment office does. like many banks, we have more deposits than loans. at quarter end, we held approximately 1.1 trillion in deposits and 700 billion in loans. cio along with the treasury unit invest excess cash in a portfolio that includes treasuries, agencies, mortgage backed securities, high quality securities, corporate debt and other domestic and overseas assets. it also serves as an important vehicle for managing assets and liabilities of the consolidated company. in short, the bulk of ceo's responsibility is to manage $350 billion portfolio in a conservative manner. while the primary purpose is to investigate excess liabilities and manage long-term risk, it maintain as smaller synthetic

credit portfolio whose intent is to hedge the company against systemic event like the financial crisis or current eurozone situation. so what happened? in december 2011, as part of a firm-wide effort and in anticipation of new capital requirements, we instructed cio to reduce risk rate assets and associated risk. to achieve this in synthetic credit portfolio, the cio could have reduced position but in january it embarked on a strategy that believed off set exiting ones that created a portfolio that was larger and hard to manage risks. this portfolio morphed into something rather than protect the firm created new and larger risks. as a result, we let a lot of people down and we are sorry for it. now let me turn to what went

wrong. we believe the series of events led to difficulties in the synthetic portfolio. they highlight the following. cio strategy to reducing the portfolio was poorly conceived and vetted. in hindsight, they didn't know the risk they took. it should have been specific to the portfolio and more granular only allowing lower limits on each specific risk being taken. cio particularly the synthetic credit portfolio should have gotten more scrutiny. in response to this instance, we've taken a number of important actions to regard against an occurrence. new leadership for cio and importantly our team has made progress in aggressively analyzing, managing and significantly reducing risk going forward. this does not reduce the losses already incurred, it does not

preclude future losses but reduces probability and magnitude of future losses. we are reviewing this incident which the board of directors is independently overseeing. we make mistakes and take them seriously and often our own toughest critic. we apply lessons learned to the entire firm. we know we will make mistakes. with he do believe this to be an isolated event. we will not make light of these losses but they should be put into perspective. we will lose shareholders money and for that we feel terrible but no client, customer, or taxpayer money was affected by the incident. our balance sheet remains intact. as of quarter end we held 900 billion in equity and 30 billion in loan loss reserves. we have strong capital ratios were in excess of regulate-year capital standards. as of march 31st our tier one

ratio was 10.1% and 8.2%. both among the highest in the banking sector. we expect both numbers to be higher by the end of the year. all of our lines of business remain profitable and continue to serve consumers and businesses and while there are still two weeks left in second quarter, we expect our quarter to be solidly profitable. in short our strong capital position did what it was supposed to do. cushion us against unexpected loss in one area of our business. while this incident is embarrassing and should not and will not detract employees from our main mission to serve clients, consumers and companies and communities around the globe. during 2011, jpmorgan raised capital and provided credit of over $1.8 trillion for consumer and commercial clients up 18% from the prior year. we provided more than 17 billion of credit to u.s. small businesses up 52% over the prior

year. and over the past three years in the face of significant economic headwinds we made the decision to step up as we did with markets and turmoil with the only bank willing to comment to lending billions to states of california, new jersey, and illinois. all of these activities come with risk and just to remain focused on serving clients, we also remain focused on managing risk of businesses particularly given today's considerable global economic and financial volatility. last, i would like to say in the face of recent losses with he have come together as a firm, acknowledge our mistakes and committed ourselves to fixing them. we'll learn from this incident and my conviction is we'll emerge from this moment stronger, smarter, better company. i would also like to speak directly for a moment to our 260,000 employees, many of whom are watching this hearing today. i want you to know how proud i am of jpmorgan chase, the company, and how proud i am of what you do every day for your clients and communities around

the world. thank you. i would welcome any questions you have. >> thank you, mr. dimon. let me say that the first panel unanimously said that there was -- that jpmorgan had sufficient capital and that there were no liquidity problems and that depositors money and clients money were not at risk. >> mr. chairman, a point of order. are we going to ask the witness to take an oath and testify under oath or has that process been waived here? >> we have never done that and in my mind i see no reason why at this hearing to do what we have not done in several years. >> i object to that, sir. thank you. >> all right. i see no reason to place this witness under -- this is not a criminal proceeding or even a civil proceeding. he's voluntarily come before us.

and at this time mr. manzaula for five minutes. >> thank you, mr. chairman, for calling this hearing. mr. dimon, on third to last paragraph of your written temperature, all activity come with a risk as we have remained focus on serving our clients, we are focused on manuel hassassagk of our business given today's financial volatility. i just returned from a conference in copenhagen discussing the tremendous crisis going on with the eurozone countries. the imf has estimated that the average debt of the 17 eurozone

countries is 80% of gdp. in the united states, the debtg but in the united states the debt of this country which includes state, local and federal is 107% of gdp, and my question to you is what do you think is going to be the bigger story two years from now in terms of the health and strength of the financial industry? >> the trading losses at gpm or the eurozone? >> i mean, i'm sorry i take up so many people's time in this loss because it is so big in the global scheme of things when we have to worry about europe. europe is a significant event. i am far more worried about europe than i am about this trading position, and i hope the legislators over there overcome their complications and keep the eurozone alive. >> do you -- can you give us a

reading in your opinion as to the impact, for example, on the u.s. economy, should the greeks decide to get out of the eurozone, go back to the drama or should the entire eurozone itself collapse. >> unfortunately, as a bank we have to prepare for all eventuality, we don't want to guess for what happened and i want to make sure we come to the shareholders and communities and say whatever happens, we can survive and thrive going forward. europe, grease defauece defaultt might result in a bank run. to put fire walls in place is not far from happening. if i had to guess at the outcome i think that might work. i think it's important to do that and hold back a crisis and then they have to go have a

fiscal treaty among the 17 nations of the euro. they have to fix the underlying problems. >> italy has an economy that's two and a half times that of ireland, portugal and greece combined. to tell you banks don't have a liquidity problem they have a big problem with debt. can you address the impact of debt on nations as it relate to the ability of -- as it relates to liquidity, but more importantly the overall economy. >> the banking, italy, surprisingly is a very wealthy nation and they have the wherewithal to meet their debt, but they're having a crisis of confidence which is damaging that, they own a lot of the sovereign debt and banking systems don't function very well. if the sovereign system is not

funking they have to go hand in hand. you have to meet both to make the whole financial system strong there. >> the reason i ask that is as you know, the eu is our largest trading partner and your bank is obviously involved in international finance. it's always important for members to be able to glean from people who are on the inside of seeing that happen -- can you give -- and i'm not looking for a forecast, but how do you see the eurozone issue as being resolved? >> in europe, what we see is that the politicians have the will and they want to fix it and there's only one plan which is to keep the euro alive. i think the way is very hard because you have 17 nations and 17 parliaments, so what we, what our economists think and the smart people listen to is there will abe fire wall because you

will have growth for the southern nations and that the 17 nations will come to the pickal treaty which has more carrots and sticks in it and that will bring down the debt of europe. >> thank you. >> thank you. >> you said that you want it to be a smart regulation as opposed to -- the economy future's training committee budget was 200 million for the year and proposed to raise it at 2008. do you think at the level of 180 million to get smart regulation. i have never looked at the budgets and i don't know what they need and it's almost impossible for me to comment on it. >> i'm disappointed and the appropriations committee is 27

to 19. i am surprised because it did seem to me you were well informed about what the federal government does and doesn't do and to talk about smart regulation, but in effect, give them a pass on the substantial reduction and see if they made a mistake, the next question is the legislation that would remove any -- over and above the volker rule they would put out derivative trading which you spoke about favorably, but there is legislation that would have exempted the transactions in question and any other transactions conducted overseas and not in this country from the rules about clearing transparency. do you believe that we should enact that and exempt the kinds of activities here even when conducted by an american institution from these

regulations? >> these trades are not exempt from regulations. >> no, i'm talking about the regulation, mr. dimon, you know what i mean. i'm talking about the specific rules enacted in the specific reform bills that are about to be adopted and transparency, et cetera, there is a bill, as you know that would exempt derivative rules, whether in a bank or know, but there are two sets of rules here. do you support that bill that would exempt these trades from the rules on derivatives that we hope to have in place? >> yes. >> why do you think that they are adequately regulated elsewhere? why would you not want the american regulators to have an ability to, for instance, transparency and clearing where possible? i thought you were approving of those. why would we want to except those activities and these rules? >> these trades are visible by occ and the fed. 16% of the traced were, in fact,

cleared and all of them were fully collateralized. >> mr. then they would have met the rule, but it does seem to me there were problems with this in terms of knowing about when it happened and in terms of being underinformed and you are in favor of -- >> not any. >> the transparency is part of the thing that would be exempted from. and we have a time issue. you said -- because you have a fortress balance sheet, these are not a threat. what about institutions whose balance sheets are less impression national, a chain link or two. if we don't just legislate for

j.p. morgan chase, is there a danger that the financial institution with less of a strong balance sheet might cause some problems? >> i don't know, but i think you should all take comfort in the fact that all banks are better capitalized. the system is far stronger today. that was know the question i asked and we can't assume that will be the case forever and there are some resisting the capitalization. would that have had problems in it that we didn't have because of the balance sheet? >> that assumes that there's something special about the way you are, but we can't assume that will be the case for every financial institution. >> we also said there was going to be profitable -- >> please don't filibuster. let me ask you, finally, that there would be some callbacks for compensation.

we both have taken some responsibility here. will the callbacks for compensation, is your compensation on the table for consideration of clubex? >> this whole with act should be reviewed by the board -- >> answer my question. >> my compensation is 100% up to my board. >> mr. dimon, you said there would be callbacks for people -- >> they will do as they see appropriate. i can't tell my board what to do. >> thank you, mr. chairman. mr. dimon -- >> over here. >> let me explain to the witness just -- because a little unusual procedure, the republican side elected to go in order and not to come back up to the top to allow all of the members to ask question and the democratic members are starting over. >> with