but when you -- i want all good things to happen. but wouldn't you be serving those clients better -- and you've done a pretty adequate job from what i can see. wouldn't you be serving them better if you spent more time and energy or that billion dollars and figuring out these mathematical formulas, wouldn't you be serving them if you invested better. >> in this case, yes. >> why shouldn't we apply that to the whole program? what i'm doing is raising a question on what is the purpose of hedging? if you're right, you win. if you're wrong, the system loses. we all lose. there's nothing more important than that confidence. >> thank you. thank you. mr. fitzpatrick. >> thank you, mr. chairman. much of the discussion regarding

jpmarch gone's trading losses focused on whether the activity in question would have been prohibited if it the so-called volcker rule had been in effect. what's your view on that? >> i've already said i don't know. the volcker rule isn't fully vetted yet. it's not fully written, and i just don't know. the volcker rule specifically allows portfolio ledging properly done, properly vetted. what it became wasn't really that. >> putting aside the question whether it would have been prohibited under the volcker rule since the regulators who wrote it can't seem to answer that question either, what's your view on whether it should be prohibited? >> i believe that portfolio hedging properly done should be allowed. it protects the companies, particularly in times of dramatic credit crisis or eurozone crisis. i do believe it should be allowed, portfolio hedging. >> mr. dimon, some have suggested that your position as a board member on the new york

federal reserve board is a significant conflict of interest and have suggested you and other bankers who sit on the board should resign your positions. how do you respond to that? >> so the federal reserve rules are written by you all. so -- but i should tell you i don't vote for the president. i don't get involved in supervisory. i can't serve in the auto committee. the board basically sits around and talks about the economy, what's going on. there are 12 federal reserve boards. that information, i think, is put together and sent to washington. it's more of an informational advisory group. whatever the lawmakers write would be fine with me. if i had a board, i'd want to hear from a lot of different types of people. it would be funny to be talking about global markets and not have someone involved in the global markets at the table. it surely does not have to be me. >> nothing further. >> mr. sherman for five minutes.

>> thank you. mr. lynch wanted to swear you in. you've already said something that is false that we all know is false. >> let me -- >> excuse me. >> i want to clarify something about swearing people in. we had a hearing in september of 2009 where mr. frank was chairman, and mr. frank made a decision not to swear in any of the ceos of the banks about what had gone on in september of 2009. i am following the protocol of the committee. if you want to continue to say he ought to be sworn in, that's fine. >> i wasn't saying that, mr. chairman. i was not criticizing you. if i can't get to the end of the sentence -- >> i'm saying the ranking member has said i'm doing something unusual here. what i'm doing is following the

standard policy. >> excuse me, mr. chairman. i didn't say you were doing anything. >> i took it as saying -- >> i made no comment. >> i'm sorry. i guess that's right. i think it was mr. lynch. >> not everybody from boston talks the same. >> this is normal standard operating -- >> i do want to take exception. i made no comment on the swearing in. let me just -- if i could, just another 30 seconds. i am gratified that you are following my precedent. i will have, by tomorrow, another list of precedents you can also follow and we'd all benefit. >> well, don't get in any rush to give it to me. >> mr. dimon, had you been sworn in, you would face no legal liability for the comment that i think you've made that is erroneous because we here are here because we're in touch with main street in our districts. and you put forward the idea that there were $350 billion that you had given to your chief

investment office because there weren't small and medium sized businesses in the united states that were credit worthy that wanted the money. and i assure you, there isn't a member of this panel that couldn't bring you 100 small and medium sized businesses credit worthy, in need of loans from you. and instead, you took the $350 million to london. and that's why we're here. if you'd make the small and medium size business loans, you wouldn't be here. some of that money in london went to the gambling tables in london. whether it was $2 billion lost or some multiple of that, that's why we're here. and i would hope that you would leave here dedicated to taking the money away from your london operations and lending it to small and medium size businesses. and if you can't find 100 in each one of our districts, we'll

do it for you. now, i'd like to, without objection, put in the record an editorial by the wild socialist over at bloomberg. i assume there's no objection. >> without objection. >> they point to a study just published by the imf that says that your bank enjoys a $14 billion subsidy, that its cost of funds is some .8% lower because of the implicit federal guarantee. what we saw in 2008 is a belief around the world that if a bank your size was going to go under, there would be a bailout not just of insured depositors but of all creditors. that belief reduces your cost by .8% of your total funds is responsible for $14 billion.

you are in a position where you are simply too big to fail. this raises -- and i think the gentleman from wisconsin made this point. you lost $2 billion or some multiple of that. you happen to be very well financed. but you bet over $300 billion. your lucky and fortunate and wise that you didn't lose more. can you say on behalf of all the banks with over $100 billion in assets that all of them could have survived a mistake this size? i'll ask you to answer that for the record. the question is, why should we allow you to be so big that if you go under, we are going to have to bail out your creditors? >> banks should take risks relative to their size and

capability, so you can't compare all the banks. i would venture -- and i'm not going to change what you believe, but a lot of banks report in the storm. i know it's convenient to blame them all for everything. but jpmorgan's size and diversification in '08, '09 and 2010 allowed us to continue to do the things you wanted us to do. we never stopped making loans. we helped the fdic fund by buying wamu. we lent money to california and new jersey. it allowed us to do it. we try to be a conservative company that does the right thing. every now and then we make mistakes. >> how can medium-size banks compete against you when your cost of capital is reduced by 80 basis points, .8%, because of a belief that if they go under, we'll let them go under, but if you go under, we'll bail out your creditors? >> i don't believe that's true.

i'm going it give you two facts. number one, we borrow in the marketplace unsecured. it cost us 200 basis points over treasury. it costs the average single-a industrial like 100 points over treasury. if everyone is so smart and too big to fail, we'd be -- >> after you lost all that money in london, i would expect the creditors would be reluctant to lend you money. >> it's not in london. most of it's here. the second is the fdic report looks at average funding costs. almost all to have was related to mix. we're a money center bank. we have a tremendous sum of money which we keep very short term and overnight which costs us very little right now because of the way the yield curve is. we have to put out -- we're the checking account for large corporations, including some nations, so we invest that money very short and make almost no money on it. it shows up as a low funding

cost. our actual cost of funds for retail deposits, middle market deposits and negotiated deposits is probably pretty much like everybody else. >> there isn't a -- >> thank you. >> thank you, mr. chairman. i've spent a number of years in the banking sector, and i'm approaching this hearing keeping in mind a primary truth about the banking industry. that is that the business of banking is inherently risky. lending money is a risky proposition. this was evident back in february when your firm disclosed in an investor presentation that it had set aside $27 billion, more than ten times the amount of its recent trading losses, in loss reserves against its loan portfolio providing that lending and exposure to credit was and is

the largest risk facing america's banks today. so we must keep this in mind as whether it's appropriate or not, volcker rule, and the attempt to keep banks from making so-called risky investments. yet, in the years leading up to the financial crisis, there was hardly a riskier proposition than extending mortgage loans in the midst of an artificially inflated housing bubble. if you want further proof of this, look no further than fannie and frooeddie, who didn' need to make proprietary trades in order to lose taxpayer money. the irony is, of course, that had the volcker rule been in effect prior to the crisis, it's likely that banks would have had even more exposure to the housing bubble and the crisis would have been far deeper and far worse. someone once said that like energy, risk is not created or

destroyed. it is simply transferred, passed on. i feel the push for ever more regulation in our economy represents a continued misunderstanding of our banking system and the roots of the financial crisis and that this misunderstanding is by itself a great risk to our financial system and economy has we move forward. with that said, mr. dimon, during your testimony in the senate last week, you stated that we don't actually know who has jurisdiction over many issues we deal with anymore. did congress miss an opportunity with dodd-frank to simplify our regulatory structure and put an end to regulators passing the buck to one another? >> it would have been my preference that we simplify it and made it a little more complicated, yes. >> thank you. so how do you respond to those that cite jpmorgan's recent

trading loss as evidence that jpmorgan and other banks are simply too large and complex to manage? >> you know, there are huge benefits to size. you see them in aircraft and banking and diversification. i already mentioned we report in the storm because of our size and diversity. the benefit of size has got to eventually accrue to clients, not to us. that is the capital system. you do things better, faster, and the client benefits. there's some negative to size. you know, lack of attention to detail, et cetera. some of those happen to small firms too. i think the company's done a good job for its clients and shareholders and we continue to grow and expand. away from this problem, our businesses are healthy and strong and serving more and more people both in the united states and around the world. we're helping a lot of american corporations travel around the world, helping them do a better job where they want to do

business and do more exports. >> so if the activities of the chief investment officer at jpmorgan were severely restricted under the volcker rule, especially to the point where portfolio hedging was disallowed, what would that do to the risk profile of the cio portfolio? >> we would probably just modify the risk profile a little bit, the cio portfolio. you know, try to make sure we're not taking undue risks. as i mentioned before, the afs portfolio has a $8 billion unrealized profit. it's double-a-plus average rating. it's invested rather shorter term to protect us from rapidly rising interest rates. maybe would have changed the nature of it a little bit. >> as i understand, the cio port fol yoe is around $104 billion of excess deposits that have not been lent out. is that correct? >> 350 billion. >> it seems if activities were

restricted, jpmorgan would be left with the unappealing option of lowering standards or increasing risk somehow in the po portfolio. is that a fair assessment? >> yes. >> would you say it's likely overall risk of the financial system would actually be increased? >> i would love to answer the question. i don't know the answer to that. it's one out of hundreds that are all being done together. >> thank you. >> thank you. mr. meeks for five minutes. >> thank you, mr. chairman. mr. dimon, you know, i've been listening, and i think there's another reason why you're here. some of it has to deal with the fact that, you know -- some of

it has to deal with politics, to be quite honest. some feel that dodd-frank has a role. others feel dodd-frank doesn't have a role. some think regulations. others think no regulations. i think it was at a point where we were talking about deregulations. we got into the problem we're in. we were about to -- i remember the secretary of the treasury coming and saying disaster was about to happen. so dodd-frank came into existence because we wanted to fix the problem so we would not be where we were when we had this terrible catastrophe that was facing our country. and during that debate -- i want to pick up some place around where i think representative maloney was talking about. there was concern about a lot of

individuals doing business in london. that's been some of the questions that's been taking place. i understand you have to get the best deal for your investors, et cetera. i kept hearing about this london loophole. from what i heard you answering to representative maloney, that there is no london loophole. it wasn't due to any regulations or lack of regulations in london. yet, when i talked to -- not to you but a number of other financial institutions. i'm from new york also. i talked to them. and they tell me that if we put certain regulations in place, they'll leave new york and go to london because they'll have less regulations in london. so i don't understand if, you know -- isn't there some kind of loophole in london that other

institutions, maybe not jpmorgan chase, but they say that if we put these regulations in place, they will leave new york and take these jobs, that's what they tell me, to london. why is that if there's no london loophole? >> our problem has nothing to do with, as far as i know, any loophole in london. it could happen in new york. that's a separate issue. if a u.s. company calls up jpmorgan and says, make me a bid on interest rates swap and we can't give them the best deal and they're going to get the best deal at another bank in europe, that's where they're going to go. the rules at the transaction level about margin, reporting, all those requirements may enable that bank to make them a better deal. two things will happen. whoever the big company is will get less bids. won't be good for an american company. the business will move to another bank overseas.

you would see some -- i don't know the head count numbers -- some firms, if they can, put some people overseas to do the business and foreign subsidiaries with the same company they were doing it with in the u.s. if a u.s. bank can't do the business at all, at all, because the rules are written so broadly, then we will lose a lot of business. you'll lose a lot of jobs here. they will not move to london. i assure you, they will one day be in singapore, china, and other parts of the world. >> time is so short. last week you referred to big dumb banks. in your opinion, could a big dumb bank be successfully resolved under title ii of the dodd-frank act without harming the american economy? >> yes, but we all have work to do to harmonize that globally and get the exact rules in place, things that you call living rules and resolution, et cetera. yes, i believe it can be done.

more work needs to be done to make it real. and people have to believe it's real. it's not just efficient for us to say it's real. we need the regulators and the people, the countries to say it's doable. it was doable in the yielgunite states for years. the fdic took down american savings banks very successfully without damaging the american economy. there are examples. it's just a bigger, more complex world. it's going to take a little more time. >> but it could be done under dodd-frank? >> i think it can be done. it's going to take foreign jurisdictions, particularly london, working out common sets of rules and how it would take place. >> now -- and you know, we also are concerned with reference to the american taxpayers being stuck. in 2009, weme wanted a fund to resolve big banks. i think a number of individuals, maybe jpmorgan was against it.

>> the gentleman's time is up. thank you. mr. garret for five minutes. >> i thank the gentleman. before you came here, the previous panel, one of the cute analogies used was keys to his daughter, he wanted to make sure that there are rules and regulations out there. if not regulators, maybe a cop on the beat. the only problem with that, to try to compare to this analogy, was there was one, two, three, four, five regulators or cops on the beat. each one of them gave basically the same answer. they got to the accident scene afterwards. in each case, they were going to tell us what they're going to do next time. the analogy just really doesn't hold true because we're trying to do obviously better than that. i know you gave the testimony here and back at the senate. your exact quote i had was, with regard to the role of the regulators and what they could

and couldn't do, you have to give the regulators realistic objectives. we're not purposely misinforming them. you had -- there was 100 regulators imbedded full time, getting up every day to go to your firm to work. aren't we at a case where there's a little bit of a charade here with the american public with regard to what it is that the regulators, even after 2300 pages of dodd-frank, are able to do in these circumstances that they're really not able to get into the detail, into the granular nature of things with or without modifications at rules? >> i think i mentioned it before. realistic assumptions help. realistic goals. i don't think stopping one thing -- but they can disseminate good information. they have constant audits. they can make the system better in total so there are fewer

mistakes and far in between. maybe it will stop someone else from making a similar mistake. >> i know the ranking member and some of the committee were somewhat taken back with your responses to dodd-frank and the legislation and how it's being implemented. that's fine. i commend you, as your part is to lobby for, if you will, what, the position for your firm, on positions of these issues and also something more from that as far as what's best in the interest of your investors too, i would presume. correct? >> no. my highest, most important thing to me is the united states of america. i hope i look back and everything i say informs the interest of the united states of america and not the interest of jpmorgan chase. i feel jpmorgan chase will continue to serve our clients and that's what we're going to try to do. >> i was going to lead there with your answer to the first

question. part of the reform we need is, what, the extraterritorial effect of some of the rules so far. we've done that in a bipartisan manner. there's legislation with us to try to reform it, limit it. the previous panel, the chair coming out with their proposed regulations. actually, not regulations, rules, but guidance in certain areas. in the areas of coming up with various standards, coming up with two separate standards with swap and security based swap dealers. a, is that the appropriate manner we should have, purely guidance rules coming out where you don't do a cost benefit analysis beforehand, or should there be more of a close working relationship when issuing rules in this area? >> well, it's a primary example of where we should have one set of rules. we have competing sets of rules.

they haven't been defined yet. i think thinking through what makes sense and cost benefit is always the right way to do it. it's hard to imagine doing something better than that. >> you agree we haven't seen that, though, since dodd-frank has been passed into law. >> there may have been places it was done, but i'm unaware of it, yeah. >> okay. just to close, then, i thought your answer was going to be slightly different with regard to the volcker rule when you said that things may not have been different with the -- had the volcker rule been fully implemented here. i thought the answer would be, well, had the volcker rule been law at the time, there simply would not have been trades going on because of the uncertainty not only by the regulator, but the certainty by institutions by what trade is permissible and what trade is not permissible. >> we really focus on portfolio hedging, which is the minor part

of volcker. that, to me, is the more important part. if i remember correctly, there were like 170 things written around that and concern that will stifle the capital markets here. if they're not done right. they may very well end up being done right. they want to get them to the right place. it's just very hard to do. >> thank you. i yield back. >> thank you. mr. capuana. >> thank you. i've agreed with a lot of statements you made. i know that may surprise some people, but it shouldn't. first of all, i welcome your voice in the discussion about what is appropriate regulation. there's no golden answer. at least i don't come to the table thinking i know the answer. you think, you try, you talk to people like you. i welcome your voice whether we agree or not in the final analysis. i particularly welcome your comments on title ii of

dodd-frank. you have clearly stated you are not too big to fail. is that a misinterpretation? >> no. >> i agree with you, but i wish that some of my colleagues on the other side would finally hear that. i think we handle that in dodd-frank. you've stated it. i agree with you. i also agree with you on the simplification of regulators. we have too many regulators. in general, the larger institutions in the organizations were nowhere to be found when we're having this debate during dodd-frank. i was on the side of trying to simplify the number of regulators. not because of what they're going to regulate because it is too many people doing the same thing. totally agree. i would work with you or anyone else to try to reduce the number of voices at the table to make your job easier. that doesn't say it would reduce the regulation. simply simplifying it. i want to talk more about the extraterritoriality. i don't think you've said anything here i disagree with with regard to competitiveness.

i want to be clear. you're not arguing that all financial institutions, u.s. or any others, should always seek the least regulated regime. that's not your argument, is it? >> that's not my argument, no. >> i didn't think so, but i wanted to be clear. you're not wrong about competitiveness. it's nobody's goal to try to regulate you. i think that's what the world is trying to accomplish now. it's a step in the direction of trying to get all the different major countries around to have similar approaches towards financial institutions. there are still looploopholes, whether you take advantage of them or not. they exist in london and elsewhere, which is why people are there. you may not be there for that reason. i don't really mind whether you are because you're one institution. the institution of jpmorgan in and of itself is of little

interest to me. what i'm interested in is the entire system. when you have a loophole or london people take advantage of it. we need to talk about it openly to try to find out whether their regulation is better than ours and regardless how we can work them together so the loophole is not just for you but also for your competitors and don't give them an advantage. i would argue that you're looking to offer the best deal. you're 100% right. you should. the truth is, if it's only about the bottom line best deal, you'd when loaning your money on the corner of some street because they get a better deal than you. they loan out their money at much better rates. the difference is, it's a little less secure. when you talk about best deal, it's not just bottom line. it's also the ability to get those loans paid back and to make a profit. it's not -- you're not just looking at the bottom line. >> i'm referring to best deal for the client. we're not going to win the ne