the senate and the house and questioning the oil executives every year when oil prices go up, i'm curious how this is all going to pan out when the chinese banks begin operation in full scale. we didn't do a whole lot of press on it, but three of the major chinese banks are not allowed to do business in america, and i'm wondering how that is going to work being a chinese bank by their rule and it was two-thirds controlled by the government in china. i'm wondering if a chinese bank gets in trouble in this country by chance, they're regulated, i'm sure, but are they going to go before the house and the senate and have to answer as mr. dimon did? i don't know if you know that or i don't even know if the information is available that. >> i don't. you asked a pretty provocative

and interesting question there. >> thanks for all of your calls and we have a reminder, too, that you can always participate online at facebook.com/c-span and twitter.com/c-span. if you missed the earlier portion or last week's senate banking committee hearing we have those in the video library available at c-span.org so you can see today's and last week's as well. coming up this afternoon in about two hour, at 4:00 eastern we'll take you to the state department here on c-span3 and let you watch the news conference as secretary of state hillary clinton unveils the human trafficking report. this is published every year by the state department on the efforts around the world to limit and prevent human trafficking and we'll have that live for you at 4:00 eastern. up until then we'll show you part of today's hearing beginning with the testimony of the opening statement, rather, of jamie dimon from j.p. morgan chase.

. >> thank you. the chair wishes >> thank you. the chair wishes to remind our guests that the manifestation of approval or disapproval including the use of signs and placards is a violation which governs this committee and maintain order and decorum. our second panel is made up of one business of the ceo of j.p. morgan chase, mr. dimon. mr. dimon, you are recognized for five minutes and maybe if the cameras would take a picture and then exit. mr. dimon, you are recognized for five minutes. >> thank you, mr. chairman. chairman baucus, ranking member

frank and members of the committee. i'm preparing to discuss recent losses in a portfolio held by j.p. morgan chase -- mr. chairman, can we get him to pull the mike closer. >> chief investment losses. these losses consider attention and while reviewing the facts i will do everything i can to the extent possible. j.p. morgan chase's six lines of business and provide a financial array of small and large businesses, governments and not for profits. >> these include deposit accounts and loans, credit cards, and mortgages and capital market's advice and 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 invests excess cash that includes treasurys, agencies and mortgage-backed securities and 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 c.o.'s responsibilities is to manage approximately $350 to our portfolio in a conservative manner. while their primary purpose is to invest excess liabilities and manage long-term interest rate and currency exposure, it also maintains a smaller, inthetic credit portfolio whose original intent was to have a systemic event like the financial crisis or the current eurozone. so what happened? in december, 2011 as part of an effort and in anticipation of new capital requirement, we

reduced the risk assets and to disassociate risk. to achieve this in the synthetic credit portfolio, they could have reduced the existing positions, instead, starting in mid-january it embarked on a complex strategy that entails any position that believed it offset the existing ones. this tragedy ended up creating a portfolio that was larger and resulted in even more complex and hard-to manage risk. this portfolio morphed into something that rather than protect the firm created new and larger risk. as a result, we let a lot of people down and we are sorry for it. let me turn to what went wrong. we believe the series of events led to the difficulties in the synthetic credit portfolio. these are detailed in my written testimony, but highlight the following. cio strategy for reducing the synthetic credit portfolio is poorly conceived and poorly vetted. in hindsight they did not have

the complete understanding of the risk they took. the synthetic credit portfolio should have been specific to the portfolio and much more granular and lower limits on the risks being taken. the cio with the synthetic credit portfolio and the firm wide risk control function. in response, we've taken a number of important actions to regard against an occurrence. we've appointed an entirely new leadership for cio. our team has made real progress in analyzing, managing and significantly reducing the risk going forward. while this does not reduce the losses incurred it does reduce the probability and magnitude of future losses. we're conducting an extense of review of this incident which the board of directors has independently overseen. we take them seriously and often, we're our own tough critic. in the normal course of business

we apply the lessons learned so we know we won't make mistakes and we do believe this will be an isolated event. we will not make light of these losses and they should be put into perspective. we will lose some of the money and for that we feel terrible and no client, customer or taxpayer money was affected by the incident. our balance sheet remains intact. we held $190 billion in equity and over $1 billion in loan loss reserves and far in excess of regulatory capital standards. as of march 31st or basel 1 the ratio was 10.4% and the estimated tier 1 common ratio was 8.2%, both among the highest in the banking sector. we expect both these numbers to be higher by the end of the year. all of our lines of business remain profitable and continue to save, and we expect the

quarter to be solidly profitable. in short, the diversified business model did what they were 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 our employees from the main mission to serve clients and consumers and companies around the globe. during 2011 j.p. morgan raised capital of $1.8 million for consumer and commercial clients up 18% from the prior year. we provided 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 not to retrench and step up when we were the only bank willing to commit to lend billions to the states of california, new jersey and illinois. all of these activities come with sxrifk just to remain

focused and serving our clients we remain focused particularly given today's considerable global, economic and financial volatility. last in the face of the recent losses we've come together as a firm, acknowledge our mistakes and committed ourselves to fixing them and we will emerge from this moment, stronger, smarter and better company. i would also like to speak directly to a moment to our 260,000 employee, many whom are watching this hearing today. i want all of you to know how proud i am of j.p. morgan chase, the company and how proud i am for what you do for our clients and communities around the world. thank you. i welcome any questions you may have. >> thank you, mr. dimon. the first panel unanimously said that j.p. morgan had sufficient capital and there were no liquidity problems and that the clients' money was certainly not

at risk. the point of order. we'll ask the witness to take an oath and testify under oath or has that process been waived here. we've never done that and in my mind i see no reason to do what we have not done in several years. >> i see no reason to place this reason under. this is not a criminal proceeding or even a civil proceeding and he's voluntarily come before us. at this time mr. manzullo for five minutes. >> i thank you, mr. chairman, for calling this hearing. mr. dimon, on the third to the

last paragraph of your written testimony, you've written, all of these activities come with a risk and just as we have remained focused in serving our client, we have also remained focus on managing the risk of our business, particularly given today's global, economic and financial volatility. i just returned from a conference in copenhagen with members of the e.u. parliament discussing the tremendous crisis going on with the eurozone countries. the imf has estimated that the average debt of the 17 euro zone countries is about 80% of gdp, 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 will be the story of the health and the financial industry, the trading losses at jp mshg jpm or the euro zone? >> i'm sorry i take up so many people's time on this loss because it is rather not significant in the global scheme of things and things that you will have to worry about as legislators and we need to worry about europe. europe is a significant event, and i'm far more worried about europe than i am about this trading position, and i hope the legislators over there can 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 and go back to the drama or should the entire eurozone itself collapse? unfortunately as a bank we from have to prepare for all

eventuality so we're not guessing what might happen and we might have communities and say whatever happens, we can survive and thrive going forward. greece defaulting a loan is not the issue with greece leaving the euro. it it might result in a bank run in italy and spain. we say as they're trying to keep fire walls in place to keep that 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 about having a fiscal treaty among the 17 nations of the euro. they have a fixed, underlying problem. italy has an economy that's two and a half times of ireland, portugal and greece combined. the banks don't have a liquidity

problem. they have a big problem with debt and could you address the impact of debt on nations as it relates to the ability of -- as it relates to liquidity and more importantly the overall economy. the banking, italy is a very wealthy nation and they had the wherewithal to meet their debt and they have a crisis of confidence which is damaging it. the banks own a lot of the sovereign debt and they don't function well if the sovereign system is not functioning. you need to fix 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 and it's always important for members to

be able to glean from people who are on the inside. can you give -- i'm not looking for a forecast, but how do you see the eurozone issue as being resolved? in europe, what we see is the politicians have the will. they want to fix it and they talk about no plan b. 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. what our economists think and a lot of smart people listen to that there will be a fire wall for italy and spain, that you will have growth and austerity plans for the southern nations and that the 17 nations will come with a fiscal treaty which has more carrots and sticks in it and it's believable by the world and they'll show long-term problems of getting to the debt of europe.

>> thank you. >> you want there to be successly smart regulation. the commodity futures trading commission budget was 200 million for the year and it was proposed to cut and the president proposed to raise it to 308, not a huge sum. do you think at the level of 180 million that you could get smart regulation out of the citc? >> i have never looked at the cftc's budgets and it would be impossible for me to comment on it. >> i'm disappointed. by the way, the appropriation says they voted 20 to 1. i'm surprised because it did seem to me you were well informed of the other aspects of what the government does and doesn't do to talk about smart regulation and in effect, give them a pass of the substantial reduction of the cftc, but

that's your answer. next question is the legislation that would remove any application. over and above the volker rule, which you've spoken of somewhat favorably, but there was legislation that would have exempted the transactions in question than any other transactions conducted overseas and not in this country from the rules about clearing about transparency. do you believe that we should enact that and exempt the kinds of activities drawn about 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. you know what i mean. i'm talking about the specific rules and enacted from the financial reform bill that are about to be deducted, regarding derivatives and there's a bill as you know that would exempt derivative trades overseas and

whether in a bank or not and there are two sets of rules here. do you believe are you in support of that bill that would exempt this trade that we hope to have in place? >> yes. >> why do you think that they are adequately regulated elsewhere? why we do not want the american regulators to have an ability, for instance, transparency and clearing where possible. i thought you were approving of those. why would we exempt those activities and these rules? these trades are visible and regulated by occ and the fed. 60% of these trades were, in fact, cleared. all of them were fully collateralized and not those rules that caused these things. >> then they would have met the rule, but it does seem to me there were problems with this in terms of your knowing about when they happened and about you being uninformed about them and

underinformed and you are exempted from these kinds of derivative information. not any. >> regulation of derivatives. >> the transparency is part of the thing they should be exempted from. no legal requirement of transparency other than that. >> let me ask you, because we have a time issue. you said -- because you have a fortress balance sheet these are not a threat, but what about institutions whose balance sheets are less impregnable, if we don't suggest from j.p. morgan chase, is there a danger that this kind of activity in a financial institution with less of a strong balance sheet might cause some problems? i don't know. you should take comfort in the fact that all american banks are capitalized and the system is far stronger today. >> i appreciate that, we can't

assume that will be that way forever and there are some who are resisting the capitalization. so if you were not as well capitalized would this have had problems in it that we didn't have because of your balance sheet? that assumes that there's something special about where you are that made us worry about it, but we can't assume that will be the case for every financial institution. >> please don't filibuster. let me ask you now, i'm sorry, mr. chairman. i asked specific questions and you did say finally that there would be callbacks for compensation. we've also taken some responsibility here. will the callbacks for compensation, is your compensation on the table for consideration of clawbacks? >> yes. the whole action is being reviewed by the board -- >> i have a specific question. >> my compensation is 100% up to my board and -- >> mr. dimon, you said there

would be clawbacks for people responsible. is your compensation in the pot that will be considered for that? >> they will do what they see is as appropriate. i can't my board what to do. >> thank you, mr. chairman. mr. dimon -- over here. >> let me explain to the witness 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 questions and democratic members are starting over. >> with modifications for people who are here or not here. >> that's fine. thank you. miss waters -- miss biggert for five minutes. >> thank you. what went wrong with j.p. morgan's value at risk model which was used to estimate losses that occur on a particular trade or in a portfolio?

the press has reported that j.p. morgan changed its model which allowed its london traders to take on more risk and then j.p. morgan changed its model again and then to top it off this change occurred in january which seemed to be material in nature, but was not included in its value at risk model. the sec has said that when a public company changes its model those changes must be disclosed. why exactly was the risk model changed? >> we have a hundred models and the intent is usually to make them better and constantly trying to be improved. back in june of the prior year. the cia and an independent model risk group was trying to update and improve a model. it was approved and implemented in january. as of april 13th, we had no

reason to think it was a better model and didn't reflect the risk being taken there. clearly when things started going south, we felt that the new model was not better and went back with the new model and we went back with the 10q on may 10th. >> so it was changed on may 10th and there was an approval? >> there's an independent model review group which approved it and where we have a review taking place and this was one of the things we'll go through and a lot of detail and make sure we know all of the facts exactly as they happened. i should also point out that we s don't run, other things that should determine your decisions. >> did you think that was adequate disclosure? >> we disclosed what we knew when we knew it. >> okay. so who was responsible for

making the change? >> it was approved by an independent model review group. whether it was implemented really well, i don't know. it's still part of the review. >> you don't know who made the change within the company or decided that there needed to be a change? >> there are costs in changes and people asking for adjustments and based on new facts and new history. do you think that regulators should have noticed whether there was adequacy in the reporting? >> regulators review periodically models and model changes and in this case i wouldn't blame that if we failed to pick up its inadequacy i don't think we should expect the regulators to pick up. >> so we don't think the changes had anything to do with what happened? >> i think it may have aggrav e aggravated what happened. i wouldn't say it was the cause of what happened. >> i yield back. >> miss waters for five minutes.

>> thank you very much, mr. chairman. mr. dimon, i am trying to understand your position relative to dodd frank and a number of other issues. i'm not going to try to use this as an i got you moment, and i don't want you to use this as a time that you can basically just give us a lot of information that we don't need. you said you support 75% of dodd frank, but after your testimony last weekend and after following your statements and the lobbying of the industry of the last two years i really don't know what you really support. when it comes to the most important element to dodd frank i'm afraid that we don't have your support even when these reforms would actually benefit your firm, your shareholders and america's taxpayers by preventing another financial crisis. of the volker rule, you called

it unnecessary and you asserted that some banks like j.p. morgan should be treated differently under the rule. they should have a higher speed limit, but at the same time you also conceded that the volker rule may have prevented the recent trading losses in the cio of capital standards and you told the senate last week that you support higher capital for larger banks and your chief risk officer has testified here in this committee against a capital surcharge for the largest u.s. banks and on title 7 derivatives requirements in dodd frank, you say that you want to work with us to implement those reforms, but you look for loopholes through bills here in congress so i want to ask a few questions and this one is a simple yes or no answer. when we think about the losses coming out of the cio in london did those losses stay in london or did the 30 billion or more drop in your market value impact

your shareholders here in the u.s.? >> yes, it did affect our shareholders. yes. >> but you have lobbied very strongly and answered mr. frank. you do believe the foreign markets should be exempt from the extra territorial regulations that we're proposing here and if this impacted your shareholders here why do you continue to take that position? >> i think i said the overseas operation with the fed and the occ. these things went and collateralized. the reason we're careful about overseas competition, if j.p. morgan operates under a different rule than our foreign competitors we can no longer provide the best product and services to the foreign clients and that's why we're concerned

about extra territoriality. if we compete we give our clients which include major u.s. companies better deals. they will go elsewhere if we can't give them the best possible deal no matter how much they like us. >> so you take that position despite the fact that the losses do not stay in london? >> yes. >> and you continue to lobby against for exemptions for the foreign trades. >> lobing is a constitutional right and we have the right to have our voice heard. >> oh, well i'm not questioning your right to lobby. i'm questioning what's in the best interest the american publ public. while the public doesn't know the full detail of the trade, we crafted under title 7, and i think we all need to be just very, very clear about that, and i want to know whether or not

you are aware of mr. gensler's testimony here today and what he said about the risk that you take in having that kind of exemption and whether or not you agree with mr. gensler and what he testified here today and any way, any shape, form or fashion. >> i don't agree with him. i heard part of it, and i think the starting point should be that the united states is the best, widest, deepest, most transparent market in the world that had flaws. we should fix the flaws. we're concerned about some of these things making us not the best capital markets in the world and the best would make this the best business machine ever. the united states of america so we just want to get it right. it's not binary. it's not one thing. these are complex rules. we want to get it right so it works for america. >> thank you. mr.