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 successfully, 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? you said you had a fortress 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- 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 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 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. >> 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?