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. >> lobbying 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 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. duffy. five minutes. >> thank you, mr. chairman. good morning. >> i think it's clear that we're not here because a private firm lost $2 billion. i think it is clear because many of the american taxpayers are concerned when big banks go bad and they're left holding the loss. it's one of these philosophies where we have capitalism on the way up, where you and your firm make a lot of money when you do well and when you fail we have socialism on the way down and the taxpayers bear the brunt of that loss and that's why we are sitting here today to make sure that taxpayers in wisconsin don't bear the loss of big banks in wall street and so when we look at what's going on, would you say that the regulators are capable of sufficiently

regulating the bank the size of j.p. morgan? >> first of all, i completely agree with the fact the taxpayers should never pay for a big bank failing totally. we should work on things to make sure that's true. >> you agree we were nervous about it when we had t.a.r.p. and the taxpayers did it just a couple of years ago and we were tired of big bank losses and they staged to regulate the j.p. morgan and they're challenged with rules and regulations and can they regulate the size of j.p. morgan? >> i believe they can, yes. >> i want to be clear because per your testimony, you said one with of the best and brightest ceos in this industry, held in high esteem you didn't know about these trades and you didn't know about these losses. how do you come forward today and say the regulators should have known that one of the best ceos in the industry didn't know and couldn't have known. >> i didn't say that.

>> we have high capital standards, higher liquidity standards, far more rules and the boards are more engaged and there's no off-balance sheet vehicles and no more subprime mortgages. the system is far healthier and you have to look at regulation in its whole and not just the one thing they might have missed. >> if one of the best ceos in the industry doesn't know about these trades how can we expect the regulators to know about these trades and protect the american taxpayer? >> i think it would be an unrealistic expectation that they'll capture everything. some things get through their screen like some things get through our screen, however they can make a better system by disseminating the things that get through the markets and they're constantly criticizing some of the things we're doing. it makes us a better company. i just think we need realistic expectations for regulators. >> i would agree, but is it fair to say that a $2.3 trillion bank

is too big to manage, too big to regulate, too big to control, too complex? are you too big to fail? >> no. we're not too big to fail. we believe a bank should be bankruptable, and that when a bank fails that the clawbacks will be invoked on management and the board should be fired, the company should be slowly dismantled in a way that doesn't cost the economy anything. >> mr. duffy -- >> allow us to answer. >> and they'll be charged back to other big banks to survive. >> if j.p. morgan fails, who picks up the tab? >> if j.p. morgan fails i don't think they'll pick up the tab. they'll have 290 billion of debt. i don't think these there's any chance we're going to fail. any losses the government bear will be back just like fdic today is charged the bank. >> j.p. morgan will spend $5 billion of fees to pay for the other banks.

>> i don't like the 5 billion, but it is appropriate to expect the american taxpayer would not have a guarantee. the order of liquidation authority would step in and bear the brunt of j.p. morgan's loss should you fail, right? that's the way dodd frank. the loss would be borne by equity and unsecured debt. they might provide temporary funds to keep the company functioning in the short run. >> is it fair to say that j.p. morgan could have a loss of $120 trillion. not unless the earth is hit by the moon. >> okay. i want to go to the trade that brought the $5 billion loss. the dollars that were used to trade those were backed by the fdic, right? >> i'm sorry. say it again? >> the $5 billion loss you incurred? the dollars that were used to make those trades, those were

dollars that were backed up by the fdic? >> yes. >> okay. >> and why, then, weren't you taking this excess deposit and investing those dollars here with american businesses, american consumers, instead taking those excess dollars taken by the american taxpayers and sending them over to london to make for a complex -- >> it's not either/or. we have $700 billion in loans. we've got 200 billion in short-term investments to handle cash flows for corporate clients and we have a $350 billion aa securities portfolio. any loan that comes through the door that we can make, small business, middle market, where we are, we try to make those loans. >> thank you. let me say i'm sure somewhere in dodd frank there's a prohibition against the moon striking the earth. so -- >> mr. maloney?

>> thank you. i would like to welcome mr. dimon who resides in the district i represent and i would like to point out he's a major employer in a number of different financial institutions before joining j.p. morgan chase. i would like to ask you, mr. dimon, i always thought you loved new york. so why are all these jobs and all this activity taking place in london? and i specifically would like to know the losses would be incurred in the london unit and they didn't take place in the new york unit and could they have occurred in new york just as easily? we learned in the prior

regulatory panel that a substantial portion of the banks, chief investment offices and activities including the credit derivatives trading are conducted in the branch and that other financial institutions likewise have london offices and we understand we're in a global market and we have to be in global markets and around the world, but what is it about the regulatory regime and the united kingdom that encourages such a large portion of these activities to take place in london as opposed to the united states? and i would also say that a large portion of the credit disasters have taken place in london. aig, we bailed out at $184 billion, lehman, ubs, there's a whole series, and i happened to understand why all of this is taking place. why london? >> the predominant part of it was done in new york. we operate in 100 countries and

we're on the ground in 60 countries and we take deposits in a lot of those countries and they all have their own laws, rules and requirements and that operation could have been in london or somewhere else and sometimes the operation where we have the people. >> is the regulatory regime lighter in london? why is all of the activity overwhelmingly and all of the problems appear to be in london? >> i don't think this activity is in london because regulatory activity is less in london and most is served in the european companies. >> what are the lessons you have learned from large financial institutions going forward? is there any way to ensure against this type of loss where a trader is forced to hedge the hedge and cover losses that led to more losses. is it possible to ensure that legitimate hedges never morph into something else? it's not possible to ensure we'll never make a mistake.

anyone who has ever been in business makes mistakes and hopefully they're small and few and far between and hopefully this is not life-threatening. we in this one area we failed to have the granular limits and the review we should have, and we believe it's not true for the rest of the company. we try to be very, very disciplined and we fixed this problem the second we found it. and were the risk limit rules raised while the position was on the books? >> no. sometimes limits were hit and it asks you for details and where they were hit people did what they were supposed to do. >> so do they raise them? >> they do get raised sometimes, yes. >> and why were they raised again. >> i don't know if they were raised. i'm saying sometimes they do get

raised. >> so you don't know whether they were raised or not. >> and was the loss-making position increased in size after it began generating losses? >> i recall is they weren't increased in size until early april and at that point they stopped taking positions and i think it was late march and what was the delay between the start of the losses and seeing your management action? >> prior to april 13th, there had been some losses and management was looking at it and people looked to stress testing and a lot of folks thought it was an aberrational thing that would come back which happens sometimes. the real losses started later in april like late april and the last week of april. they at that point brought in top experts again and they dug deep and we realized we had a much more severe problem and that it was late april that we started to --

>> and what was the delay between the start of the losses and disclosure of the losses to the office of the controller of the currency on site at j.p. morgan chase? >> i don't believe there's a delay in the disclosure to losses. we try to run the company that tell them what we know and when we know it. i don't know what the reports are they're looking at and we don't hide reports from them. they do see p & l so they saw the losses and we went to explain what happened and right prior to april 13th and we do not understand the seriousness of it until later in april. >> thank you. our time has expired. >> thank you, mr. chairman. forgive me as i've been bouncing around. just so i can get -- put it on the record. what's the best investment of the lawsuits?

>> we have not disclosed that. when we made disclosed the shareholders and the quarter on july 13th and we gave a full and fair explanation of what went on. you feel this would never be life-threatening to the company and we'll have more details to come when we report the quarter. >> probably the second and i'll reserve your time, so if we stop the clock. i think we all need to realize and if you've read the articles on this the more disclosure that is made the more those betting against the position of j.p. morgan can use that to the disadvantage of j.p. morgan. in fact, i think it's pretty well established that part of this open disclosure and discussion has allow the a lot of those and it's precipitated some of those losses, but -- so, it's not necessary for him to

disclose proprietary information and if you read the articles you will see they're managing this and the independent people have said that, but the loss could be 6 billion, but that's just an estimate. it could be 2 billion, it could be -- some have estimated it could be less than that. >> thank you, mr. chairman. >> start the clock. >> and you'll be doing your quarterlies very shortly. the next question we can ask is profits for the quarter, but we'll wait on that one, too. >> there will be profits in the quarter. >> and that was the point i was trying to head toward that at least as an institution it's not happy, it's shareholders' money, but not devastating? >> not devastating. not fun, either. >> and this is actually more of an offshoot having read some of the senate testimony. i want to get my head around something that is all up and

down the financial and the fixed income and the banking community. we're all operating in an environment that literally is zero interest rates. you plug in interest rates today and plug in real inflation and so slight movements whether be caused by a cascading europe or argentina or fed policy or fiscal policy here. my understanding is just little bits of movement would be devastating to your book of business, if you have not hedged that. what scale are you hedged for the fear of movements and interest rates a couple of ticks up? >> our biggest exposures are credit and interest rates and we try to manage the portfolio such as rising rates, and the rapidly rising rates and in fact, we're positioned today that if rates went up we'll make more money

and it does cost us to do that, but you're heading toward the ultimate question here. i'm trying to get a sense of the cost to prevent to do that type of risk management and that's one of the frustrations, and i hear lots of discussions, and a lot of folks don't understand, it's expensive. yea. it costs over $1 billion a year to benefit from rising rates as opposed to neutral from rising rates and it protects our company which is why we're there. again, we may be wrong. >> and is much of -- do you have to do excessive amounts of hedging in that fashion or buying -- we'll call it interest rate insurance. it might be an easier way to understand it because of your imbalance in both deposits to loan portfolio? >> the investment portfolio is invested to help matter was exposure. the average duration is three

years. if you have consentive. it gives us the ability to reinvest $40 billion a year and what the current value is and that's what we use to manage interest rate exposure. >> your universal lam is saying three years? the duration is three years of the afs portfolio. the $350 billion portfolio. and that costs you almost $1 billion a year to ensure? >> just to keep it positioned so we benefit from rising rates. >> in this type of environment and in your understanding and i know we're working on the mechanic, the volker rule, what would happen in these trades if the volker rule. >> the original intent it would have been allowed because it would benefit the company in a eurozone.

it violated common sense and i don't know if the volker rule would have or could have stopped that. if it didn't, it wouldn't bother me. i think the far more important thing about the volker rule is the ability to make active markets here which keep down spreads for everybody, for all investors, and that it makes it easier for companies to raise money and cheaper for investors to invest money. those investors are veterans, retirees, mothers, they're not just people like me. so that's why we think the volkers have to be written carefully to maintain the best capital markets in the world and not stifle them. >> okay, in six seconds, how do you as an international organization hedge against political risk, what's happening in argentina, what's happening in europe and what's happening in other places? what do you have to do and what does it cost? >> some places we don't do that much business. it's an easy solution. in other places we have other

conversations. if you are wrong about a country how much you might be willing to lose, so we do investments in other countries and we don't want any one country or anything to damage j.p. morgan if we're wrong about the view of that country. >> thank you. >> ms. velasquez for five minutes. >> thank you, mr. chairman. mr. dimon, although this trading loss did not do substantial harm to morgan chase's capital position, it very well may have caused the collapse of a weaker bank. do you think separating similar investment activities from traditional banking, taking deposits and making loans is a reasonable approach to protecting the fragile economy from bank failures? >> i do not. >> i thought so. >> let me give you facts to support what i say. early on, mortgage bankers went bankrupt and monoline, bear

sterns and lehman and a monoline insurance, aig, monoline were thrift savings companies and freddie mae and freddie mac which were the biggest disasters of all time, and all of that happened and it had nothing to do with glass steagall and in other parts of the world that didn't have glass steagall like canada, they had good banks and good regulations and proper capital levels, et cetera. >> okay. so, as you know, the rule making to implement the volker rule is ongoing and experts are still debating in its current draft the rule would have had these rates. how should, given the lessons learned, the volker rule be implemented to account for the complexity of those that caused j.p. morgan's loss and the possibility that they move the unpurely hedging risk?

>> i'm not writhe the rules. it was badly implemented and badly tested and i would ask companies if you're going to do something like that, properly vet it, properly test it so it never morphs into something which it was never intended to do. >> so the dilemma is where does the hedging risk stop and risk appropriate trading start? >> i can't define that for you. i'm sorry. >> thank you, mr. chairman. >> thank you. mr. graham for five minutes. >> thank you, chairman. good afternoon, mr. dimon. can we just to continue with -- we're hearing a lot about this volcker rule. we heard if all of dodd-frank was implemented, it's possible these trades wouldn't have occurred.

would it be safe to say if you didn't do any trading at all, you wouldn't have any losses? is that true? >> yes. >> if we made banks a utility and we couldn't compete with europe, that would pretty much clear this up as well. would that be one way to get rid of losses and take the risk out? >> yes, i think. >> okay. so when we look at before when we were talking about the regulators main colleague mr. duffy was saying -- he asked you, do you think the regulators can regulate jpmorgan chase. you said yes. his argument was why couldn't they find this one trade? i think the point -- again, my humble opinion. regulators are there to look overall at the major rules such as maybe minimum capital requirements, maximum leverage ratios, maybe some concentration risk, some rules in place. those three things combined, regardless of whether you have a bad trading day, is it safe to say we could never expect

regulators to be able to have foreseen this loss of jpmorgan chase? >> yeah, i think it's fair to say the regulators do the job, the system will be healthier. most banks will be healthier. the chance of having a systemic collapse will be virtually zero. to expect them to capture any one trade is an unrealistic expectation. >> okay. i happen to agree with that. i don't think regulators will be ever set up to do that for the amount of institutions and the amount of trading and the amount of metrics that would need to be put in place to figure out whether something is a prop trade or not is an unrealistic goal. and we're setting ourselves up for failure. if we focus on things like the capital requirements, leverage ratios, making sure there's not too much concentration, i think that's something that regulators can actually get their hands around and do a good job at. would you agree with that? >> yes. >> okay. now, if i can get into the weeds a little bit just to understand a little bit about your risk

models without divulging your proprietary information. can i just ask, what was your value at risk model -- how did you calculate it? daily, weekly, monthly? >> i believe it to be daily. >> do you know if it was a 95% concentration? 95% confidence? >> we look at both 95 and 99. i forget what the public disclosures are. >> okay. my question was going to be a 95% confidence level is approximately two standard deviations. if you go to three, four sigma, you're talking 98, 99. would that have helped your scenario? i'm just curious. would that have actually helped? >> it's just a basic statistical thing. there's nothing mystical about var. the other things which help are having limits at a granule level and doing real stress testing. like what happens if rates blow out, what happens if the

eurozone has a crisis, what happens if you have a credit crisis in the united states. we do all of these things to manage risk. var is one measurement. in my opinion, not the best of them either. >> okay. i want to also go back to make a point. at any point -- i know the sums were technically insured by fdic. at any point, having the benefit of looked at these trades, were the taxpayers at risk? >> no. i believe one of the fed governors here is saying the bank can bear $80 billion of risk before the taxpayer might be at risk. >> and lastly, i just want to -- because i'm actually trying to get my hands around this to look at some areas of concentration risk. maybe looking at concentration risk -- when the financial meltdown in 2008, much of the concentration was in loans.

we know it was in subprime. based on jpmorgan's size, just your size alone, other markets petitions were able to clearly notice your london desk's activities related to somewhat ill liquid credit indexes. do you think re-evaluates that is something that makes sense for the banking institutions overall? >> yeah, that was one of the flaws here. this book should have had more granule limits. one would have been specific limits on anything that might be liquid, specific limits on credits, specific limits on counterparties. we had some but not all. they all should have been in place. >> thank you, and i yield back. >> thank you, mr. ackerman for five minutes. >> thank you. if i might, i'd like to get back to some very basic concepts. in your opinion, is gambling

investing? >> no. no, it is not. >> what's the difference between gambling -- briefly, if you can. >> when you gamble, on average you lose. the house wins. >> that's, in my experience, with investing. but -- >> i'd be happy to get you a better investment advisor and see if we can improve upon your experience. >> you have generally, except for recently, a good track record. i would tend to agree with you, but we seem to be treating them quite the same. i used to think that all of wall street was on the level, that it facilitated investing, that it allowed people and institutions to put their money into something that they believed in and believed would be helpful

and beneficial and grow and make money and especially help the economy and on the side create a lot of jobs and be good for our country and good for america. now a lot of what we're doing with this hedging, and you could call it protecting your investment or whatever, but it's basically gambling. you're just betting that you might have been wrong. it doesn't help anything succeed anymore. it doesn't encourage anything anymore. it creates the possibility that people say, do these guys know what they're really doing if they're betting against their initial bet? if you hedge against your hedge, which means you're betting against your bet against your first bet, it seems to me that you're throwing darts at a dart board and putting a lot of money at risk just in case you were wrong the first time. i don't see how that creates one job in america. i don't see how it helps the american economy.