proposal that democrats and republicans have talked about in the past, but i think you will see a lot of criticism from republicans focusing on the idea that this is the campaign moved. if he could do this, make this change by executive order, why did he not do it two or three years ago? >> russell burman of "the hill" newspaper and daniel newhauser of "roll call," gentlemen, thank you very much for being with us on "newsmakers." c-sp [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] quite sick and what this interview with republican policy chairman tom priced at 6:00 p.m. eastern on c-span. today, testimony from jpmorgan ceo jamie diamond followed by justice party oversight. it later, a campaign rally in

ohio. based in lawmakers and protesters on capitol hill. mr. dimon is also a member of the new york fed board of directors. he apologized talking about the risky trade debt resulted in massive losses were isolated and a mistake. in addition to internal reviews, the fbi and others are investigating. this hearing is about two hours, 15 minutes.

>> jamie dimon is a crook. this guy should be going to prison. you need to listen to bernie sanders. listen to independent bernie sanders. he's taking trillions in taxpayer bailouts at zero interest. this man is a crroook nad needs to go to jail. these guys are not job creators. they are job destroyers. the people need money to help stay in their homes. this man's a crook.

>> this hearing will come to order. suspend until the chairman has arrived and i would ask the capital pleased to restore order. -- capitol police to restore order. >> this man is a criminal. you're taking homes from people. >> the hearing has been called to order. we are suspending. restore.easlease

as people to cooperate so we can conduct a serious inquiry into this matter. i ask the capitol police to please remove anyone in the audience who is interrupting the hearing. before we proceed, i will remind our audience that any interruption of the hearing will not be permitted and you will be escorted out of the room.

>> stop foreclosure now. stock foreclosure are now. >> get them off the table. >> stop foreclosure now. stop foreclosure now. stop foreclosure now. stop foreclosure now.

>> this hearing will come to order. i ask the capitol police to please remove anyone in the audience who is interrupting the hearing. before we proceed, i will remind our audience that any interruption of the hearing will not be permitted and you will be escorted out of the room. we will now proceed. this hearing is part of the banking committee's ongoing oversight of the massive trading losses announced by jpmorgan chase and implications for risk management, bank supervision and the wall street reform act. since the announcement of the loss in early-may, this

committee has heard from the sec, the fed, and relevant officials to learn from these events. some members of the committee have asked to hear from mr. dimon, and after due diligence conducted by my staff and ranking member shall be's staff -- shelby's staff, i decided to invite mr. dimon. last week, regulators conform to the committee there was a breakdown in risk management involved with these trades despite the fact that the trades were reportedly designed to reduce the bank's risk as they -- risk. as they continue to look into the matter officials have assured us that the stability of our financial system are not

in jeopardy at this time. while this is welcome news, questions remain that must be answered. if we want our largest banks to better manage their risks to maintain financial stability, as i believe we do. today marks the two-month anniversary of mr. dimon's "tempest in a teapot" comment where he downplayed research -- concerns of the reaper trade. -- of the trade. we later learned it was no risk controls the cost the company billions of dollars.

as i have said before, no financial institution is immune from bad judgment, and in mr. dimon's own words he explained we made a terrible, egregious mistake. there is almost no excuse for it. we know we were stupid. we know there was bad judgment. in hindsight, we took far too much risk. the strategy was badly vetted, badly monitored and should never have happened there, what went wrong? for a bank renowned for risk management, where were risk controls? how can a bank taken on far too much risk when the point of trade is to reduce risk in the first place?

was goal really to make money? should they be focused on reducing risk? as the saying goes, you cannot have your cake and eat it too. as far as policy implications, my colleagues would argue that wall street reform micromanage is the operations of a large bank and regulators cannot keep up with bank and evasion. i disagree that less supervision had and less regulation will make banks less risky. we can and must demand that banks take risk management seriously and maintain strong controls. we must also demand that regulators do their job well. after all, beijing is an important, the -- banking is an important, risk-filled business

and the need overset so that mismanagement does not threaten the stability of our economy. some also suggest that capital is a silver bullet in financial regulation. while capital does and must play an important role as a backstop we must not rely only on capital. any well-capitalized banks can fail and threaten the financial stability if it is not well- managed or well-regulated. our financial system that is safer and stronger with multiple and well corroborated lines of defense, which wall street reform requires in addition to higher capital standards. congress should find -- fund them with sufficient resources so they can effectively monitor the financial system. again, it has been two months

since he first publicly acknowledged -- the trades, so i expect mr. dimon to be able to answer the questions today. a full accounting of these events will help this committee to better understand the policy implications for a safer and sounder financial system going forward. i now recognize ranking member richard shelby for his opening statement. >> thank you, mr. chair. today, the committee will hear from the chief executive officer, president and chairman of jpmorgan chase, mr. jamie dimon who is here today because jpmorgan chase lost more than two billion dollars on derivatives trades. normally is not and it should not be the role of congress to guess -- second-guess decisions of private sector businesses,

however the federal government guarantees bank deposits, and this committee has a responsibility to insure that banks do not unnecessarily put taxpayers at risk. if congress has in large part delegated the responsibility of oversight to financial regulators that are supposed to monitor the activities of banks like jpmorgan chase to ensure that they operate in a safe and sound manner. as we learned from the most recent financial crisis and this particular instance, regulators do not always meet our expectations. banks take risks because that is what they do. usually, those risks are beneficial, because they enable americans to buy homes, attend

college and save for retirement. when banks fail to prudently manage those risks however, serious problems can arise. for example, in the years we've got to the financial crisis, some banks claimed they could safely provide mortgages to borrowers with no documentation and small down payments. advancements in risk management but supposedly enable them to lend to riskier borrowers without threatening the bank's safety and soundness. we now know this was false. the banks were not applying better risk management techniques. they were simply foregoing time-tested underwriting standards and the result was the failure of some of the largest financial institutions including countrywide, fannie mae and freddie mac. certainly, many bankers did not make these mistakes, and by most accounts our witness today was one of them, yet as the financial crisis shows for risk management in even one single large bank can have profound

consequences. congress and bank regulators must, which always watch for risks that could is improperly managed threaten the system. we should examine the facts surrounding j.p. morgan's to billion dollar loss, and as we do so unthinkable questions need to be answered. -- as we do so, i think two questions need to be answered. did the losses threaten the safety and soundness of j.p. morgan had and could happen again? last week, we heard from banking regulators. they answer the first question when they told us that the $2 billion did not threaten bank insolvency because the bank has strong earnings and sufficient capital. if this conclusion shows once again why the single best way to protect taxpayers from bailouts is to ensure that banks are properly capitalized. strong capital requirements provided valuable buffer against unexpected losses

arising from the inevitable missteps from banks and regulators. although capital should be the first line of defense against taxpayer bailouts it should not be the only defense. banks also need to have good risk management. although j.p. morgan enjoy a strong reputation for effective risk management, something obviously went very wrong. regrettably, the comptroller of the currency, the federal reserve, the fdic, they were unable to tell us what happened despite having more than 100 on-site examiners at j.p. morgan. hopefully, mr. dimon today can fill in the details. in particular, i hope mr. dimon can explain why these trades were made and why they produced such large losses. i also hope to learn the extent

to which mr. dimon and other j.p. morgan senior executives were involved in the decisions that permitted these trades. mr. dimon has long been recognized for his effective management of a successful institution but it appears in this case things perhaps get away from him. why? did mr. diamond put too much faith in the risk model? or did he ignore them? it has been reported that officials may have dismissed warnings that the banks is that the bank was not administrating appropriate that the bank was not administering appropriate risk strategies. it has also been reported that the office responsible for these trades may have had contradictory mandates. while the stated goal of the office may have been to reduce risk, and plays of the office apparently believed they were expected to turn these into a profit. bank employees referred to the profit as the icing on the cake.

what were mr. dimon's expectations for this office? was he incentivizing them to manage risk or to maximize profit? if it was the letter, where the incentives to profit consistent with proper risk management, and moreover what did the board of directors know about how mr. dimon was managing risk? it has been reported that the risk committee may not have had the expertise necessary to oversee such a large bank. i hope to learn not only about mr. dimon's role in selecting the members of the risk committee but how they committee oversaw the firm, the risk management. finally i hope the hearing reveals what lessons mr. dimon, j.p. morgan and others could learn. this hearing will have served a valuable purpose if it helps banks and regulators avoid repeating the mistakes of j.p.

morgan. in this regard i believe it is unfortunate the committee has not held similar hearings with the heads of other financial the institutions and although the committee is hearing from mr. dimon's whose bank lost $2 billion in its own money, it has never heard from executives of fannie mae and freddie mac who have lost nearly two hundred billion dollars of taxpayer dollars. perhaps the committee could turn its attention to the gse compel massive public losses when it completes the review of the private losses thus far of jpmorgan chase. >> thank you. mr. richard shelby. >> one opening statement will be permitted to the ranking member. i will note that senator warner is absent to attend his daughter's graduation but he will be submitting a statement

and questions for the record. i want to remind my colleagues that the record will be open for the next seven days for opening statements and any other materials you would like to submit. now, i will introduce a our witness. mr. jamie dimon is the chairman of the board, president and chief executive officer at jpmorgan chase and co. mr. dimon, your full written statement will be included in the record. please begin your testimony. >> chairman johnson, ranking member shelby, and members of the committee, i am appearing today to discuss recent losses in a portfolio held by jpmorgan chase's chief investment office cio. these losses have generated considerable attention, and while we are still reviewing the facts, i will explain everything i can to the extent possible. jpmorgan chase's six lines of

business provide a broad array of financial products and services to individuals, small and large businesses, governments and non-profits. these include deposit accounts, loans, credit cards, mortgages, capital markets advice, mutual funds and other investments. what does the chief investment office do? like many banks, we have more deposits than loans -- at quarter end, we held approximately $1 billion in loans. -- $1 trillion in loans and $700 billion in loans. cio, along with our treasury unit, invests excess cash in a portfolio that includes treasuries, agencies, mortgage- backed securities, high quality securities, corporate debt and other domestic and overseas assets. this portfolio serves as an

important source of liquidity and maintains an average rating of aa+. it also serves as an important and liabilities of the consolidated company. responsibility is to manage an approximately $350 billion portfolio in a conservative manner. while cio's primary purpose is to invest excess liabilities and manage long-term interest rate and currency exposure, it also maintains a smaller synthetic credit portfolio whose original intent was to protect -- or hedge-- the company against a systemic event, like the financial crisis or eurozone situation. >> so what happened? we constructed cio to reduce risk-weighted assets and associated risks. to achieve this, the cio could simply reduced existing positions. instead, starting in mid- january, it embarked on a complex strategy. this strategy and the decorating a portfolio that was

larger and resulted to be more complex and harder to manage risk. this morphed into something that rather than protect the firm created new and potentially larger risks. as a result, we let a lot of people down. let me tell you how it went wrong. these are not excuses. these are reasons. this is detailed in my written testimony but i will highlight the following. the cio strategy of reducing the synthetic portfolio was poorly conceived. they did not have an understanding of the risks they took. the risk limits should have been specific to the portfolio and much more granular, only

allowing lower limits and each pacific crest to be taken. specifically, there should and more scrutiny from senior management, and i include myself in that, and the firm- wide risk control function. did response we've taken important actions. we have appointed entirely new leadership for the cio. we have made progress in managing and reducing risk going forward. while this does not reduce risk already, it does reduce the probability and magnitude of potential future losses. we are also conducting an extensive review that our board of directors has overseen. when we make mistakes, we take them seriously. we are often our own toughest critic. we can never say we will not make mistakes. we believe that this was an isolated event. we will not make light of these losses, but they should be put into perspective. we will lose share all the money, and for that we felt terrible.

our balance sheet remains intact. as of quarter-end, we happen extremely strong capital ratios, far in excess of regulatory standards. as of march 31, 2012, our ratio was 10.4%. our estimated ratio is at 8.2%. both are among the highest levels at the banking sector. we expect both of these numbers to be hired by the end of the year. all lines of business remained profitable and continue to serve consumers and businesses. while there are still two weeks left in the second quarter we expect the quarter to be solidly profitable. our position in capital did what was supposed to do -- cushion against an unexpected loss in one area of our business. while the incident is embarrassing his it should not

and will not detract employees from our main mission to serve clients in communities around the globe. in 2011, jpmorgan chase raised capital and provided capital of over $1.8 trillion, up 18% from the private year and provided over $17 billion of credit to small businesses, up 50% from the prior year, and in the face of headwinds we made the decision to step up as we did with markets in turmoil as the only bank willing to commit to lend trillions to the state of california, illinois. just as we have remained just as we have remained focused on serving our clients, we have also remained focused on managing our business. my conviction is will which we

will emerge stronger, and as a better company. i would like to speak directly for a moment to our two hundred 60,000 employees, many of home are watching. i want to know how proud i am of jpmorgan chase the company and proud of what they do every day for the community. thank you and i welcome any questions you might have. >> thank you, mr. dimon, for your testimony. as we begin questions i asked the court to put five minutes on the clock for each member. mr. dimon, there was clearly a breakdown in risk management at your firm. what did you know when you made your "tempest in a teapot" comment? why were you willing to be so disconnected when it appears you did not have the full

understanding of the trading strategy? >> let me first say that when i made that statement i was dead wrong. i had been on the road. had spoken to our risk officers, our chief financial officer, there were issues with the cio. i was assured by then and i have the right to rely on them, that they thought this was an isolated, small issue and it was not a big problem. they look at things at how bad could it get, and under no event did it look like it would get as bad as it got after april 13. >> mr. dimon, there were reports that the cio had scrapped a risk limits that would have required traders to exit positions if losses exceeded $20 million.

is this true? if yes, did you approve this, and why was the limit removed? >> there was no loss limit of $20 billion compared >> $20 million. >> how much? $20 million. i am not aware of a $20 million loss limit. cio had its own limits on exposure. at one point in march some of those limits were triggered and the cio as traders to reduce taking risks and started looking heavily into the area, which is the proper thing to do. sometimes triggers get hit, and it should be focused on to decide what to do about it. >> there have been concerns raised about the change made in the cio's risk model. when the regulators were notified, why was the risk

model change, and did a change of less the true risk of the trading activity? >> what i am aware of is that sometime in 2011 the cio had asked to update their models partially to be compliant with the new basel rules. model reviews are done by an independent group that start the process six months earlier and in january did have a new model. i should note that models change over time to be better. models were approved by the model review group, implemented in january and did effectively increased the amount of risk the unit was able to take. on april 13 we were still not aware that the model might have contributed to the problem, so

when we found out later on we went back to the old model. the old model was more accurate in hindsight than the new model -- than we thought it was quite to be. >> reports suggest there were multiple warnings of leaked controls at the cio that were ignored and in your testimony you said strategy was not reviewed outside of cio. did you make the decision to exempt the cio from any review of risk controls outside of the unit, or why was no one watching? >> the first error and we made is the cio had done so well, so long that i think there was complacency. they had their own risk committee that was supposed to review all of the risk.

i think it was not independent- minded enough and should have challenged more rigorously this synthetic portfolio. the second related risk is the synthetic product portfolio should have always had more scrutiny. there were higher risks and there shouldn't it limits from the start. >> -- there should have been higher limits from the start. >> mr. dimon, was the pay structure at the cio incentivizing risky behavior that led to the trading loss instead of rewarding those who reduced the bank's risk? were there bonuses for generating profits? other than cio, will you seek clawback from executives involved in this trading debacle? >> to start with, we have not

had for five or six years several -- special severance packages, where parachutes. nobody was paid on a formula. the management of the cio portfolio was subordinate to the rest of the country -- company. they were not allowed to do what they wanted. the could not take high-risk, etc.. when we pay people, everyone, we look at the unit performance, the company performance, and that includes a recruiting, training, integrity, sharing with senior management -- all the things we need to do to make it a better company. i do not believe the compensation made this problem worse, and like i said none of these folks were paid in a formula. your second question was clawback. when the board finishes the review, which i think it is the

appropriate time to make the decisions, you can expect we will take proper corrective action and i would say this is likely to be callbacks. >> senator richard shelby. >> thank you. >> mr. dimon, so that we would have some idea of what happened, could you explain a little further what really happened without divulging your proprietary interests? we do not want you to do this. tell us a little more. in other words, you are managing risk. what were you managing? >> the biggest risk we take is credit, loans. the excess deposits, we have it $350 billion portfolio. that is the biggest part of the cio. the average rating is aa +. we also have the cash invested

in central banks around the world. >> we understand that, but in this case that brought these losses on, explained to us without getting into your proprietary area what you were doing and what went wrong? >> the synthetic credit portfolio -- originally the design -- >> what do you mean? >> index derivatives trading in the market. >> you took a position in the? >> we took a position in them that was meant to in the nine environments make a little money but there was a crisis they would reduce risk by making money. during 2008, 2009, it accomplished those investments. >> were you investing or

hedging? >> i would call this hedging, hedging their risks of the company, protecting the company if things got really bad. >> the credit went bad? >> yes, if credit when really bad, this would do well. that was the original intent. in january, february, march, we asked them to reduce this risk. they created a portfolio that have far more risks, that were far more complex, and on april 13 we were not aware of that, but soon after we were and we made it public announcement, as we thought i owed the shareholders that, and since then we have been managing and reducing risk. >> to tell what really happened, here in general terms, would you feel better in a

closed hearing, or would you not to divulged things because you have a position for interests? >> we told shareholders we intend to make more disclosures about what happened and specific disclosures with this portfolio and what we've done to reduce the risk in the portfolio. >> i guess the question comes up, was this hedging or proprietary trading? according to some press reports there is disagreement about whether the chief investment officer, which executed these trades, was supposed to be hedging risks or earning a profit. it has been reported this office contributed more than $4 billion of net income in three years, about 10% of your overall profit. what was your expectation for this unit, the cio unit? was it supposed to hedge, or some of both? >> if the whole cio unit to

invest money and earns income, and that is a broader array of diversified investments, and the income is used to pay depositors, branches -- yes, it is supposed to earn revenue. in this specific synthetic revenue portfolio it was intended to earn revenue if there was a crisis. i consider that a hedge. it was protecting the downside risk of the company, and, in fact, the biggest risk of the company. the biggest risks faced are dramatically rising interest rates and a global credit crisis. those are the two biggest risks we face. we intended to improve safety and soundness, not make it worse. >> was walked went wrong the way the package was contrives, or event beyond your control? >> i think the way it was contrived between january, february, march, it changed into something i can not publicly

defend. >> lessons learned -- what have you as ceo of j.p. morgan, which is our largest bank, what have you learned from this problem, this debacle? >> i think that no matter how good you are, how competent people are, never get complacent in rest, challenge everything. make sure people in risk committees are asking questions, share information, and that you have granular limits, no more than this risk in a marked the much including -- in a market, including things like liquidity risks. in the rest of the markets we have those things, and we did not have it here. that is what caused the problem. >> thank you, mr. chairman. >> senator schumer. >> thank you. good morning. my first question is about risk committees.

i was a proponent in dodd-frank of increasing corporate governance and fought to have included in the dodd-frank provision when 65-8 -- 165-8, a separate risk committee on the board that includes "at least one risk management expert having experience in identifying, assessing and managing risk exposures of large, complex firms." some questions have been raised about the oversight provided by your firm. you already had won, so you did not need the legislation, but what went wrong with the rest committee and what could you suggest to regulators as they formulate rules about risk committees? why did they not do their jobs, finding out this was one area that did not have the limits in place elsewhere? >> there could be a lot of work

to talk about the main risk of the company. it is not realistic to capture the risk committee to capture something like this. i would point out this risk committee took the company for the most difficult financial crisis of all time with flying colors. so, the risk committee did a great job. this is a flaw i would blame on management, not the risk committee. recently, two directors have been added that have experience in financial markets. >> ok. so, you feel the risk committee -- this was too small of an item for them? give me a little more context for this. >> the risk committee reviews broader issues, regulations, requirements -- they need a lot of management. they talk to rick committees. i think it would have been hard to capture this is management did not capture it. we were misinformed and impaired >> the second question

goes to the broader -- we were misinforming them. >> the second question goes to the broader context. a share. -- the shareholders lost, but the taxpayers did not. what is to stop this from happening again, maybe being a larger loss, but particularly in a week or less well-capitalized institution? it was an institution smaller than j.p. morgan the start of the capital the catapult, firms like lehman brothers. -- the catapult, firms like lehman brothers. were we just lucky? what is your assessment about the danger of this type of thing happening in other institutions that are not as well-capitalized as j.p. morgan? >> we were not lucky. we have limits in place that

captured it. they should have been much smaller in this particular activity. one thing regulators can and do do is this a minute and, a best practices everywhere. -- disseminate and propagate best practices everywhere. there is more transparency. boards are more engaged there are no off-balance-sheet vehicles. a lot of this has happened across countries, across america. >> what about nonbanking institutions that do not have the same requirements but are engaged in similar activities? >> i think the regulators are currently deciding which of the nonbanks will be part of systemic risk oversight and i will leave that to them at this point in time. >> final point, the chairman asked this, but it is about callbacks, and i was glad to hear there is a clawback policy. it seems to be an appropriate thing to do.

when people make tens of millions of dollars for taking risks and they do it clearly, if there is a clawback there might be a good internal incentive to be a little more careful, if you will. could you tell us a little bit about the policy that you have for slotbacks? i know you do not want to talk about -- callbacks? i know you do not want to talk about individual cases, but tell us how it works, how mandatory it is, that kind of thing. >> there are several layers. we could clawback for judgment, cash bonuses, so it is expensive. i was in favor of the system. i think one of the legitimate complaints was that after about crisis a lot of people walked away with money from companies that went bankrupt. some of that was not appropriate. in this case the board will

review every single person involved. some people have been successful for a long time to >> is there a limit to how much the clawback is, or is it discretionary, and second and final question has it been used thus far in your bank over the years you have had the policy? >> it is not been used thus far. >> are there limits? >> there are limits essentially to what you have been paid. some limits are to what you have been paid over the last two years. >> senator crapo. >> thank you, mr. chairman and mr. dimon. last weekend, the testimony presented by the regulators, one of the tensions that we face here is we want to be sure we are adequately regulated and our financial institutions and we want to be sure we do not have the regulators basically running private sector institutions.

in that testimony last week, the comptroller indicated that there are approximately 65 on- site examiners from occ on site at j.p. morgan. is that correct? >> i believe so, yes. >> what should the function of the regulators be? many said the primary focus should be to make sure the banks are properly capitalized. should that be the primary focus, and what other areas of oversight would be the most effective for us in terms of regulatory structure? >> so, i've been in the regulatory business my whole life, and they look at many things we do, they audit it, criticize it, and it is important to acknowledge there have been changes because of their criticism. i think you have to keep realistic objectives. i do not think realistically they can stop something like

this from happening. it is purely management compelled mistake. if we are misinformed a little bit, not purposely, we are misinforming them. the most important thing is high capital, good liquidity standards, proper disclosure, proper governance, proper functioning risk committees which it all of those things will not stop the attacks, -- risk committees -- not all of those things will stop these things, but they will make them smaller. >> one of the things we learned was that during the stress test applied to j.p. morgan it was assumed j.p. morgan could deal with losses of around $80 billion and still be adequately capitalized. is that correct? >> we would be adequately capitalized, but i would not be the person sitting in front of you right now. [laughter] >> we are great believers in stress test we were put through

a severe stress test. 20% unemployment, a crisis in europe, and markets as bad as what we saw during the bid and brothers crisis, and we came through with flying colors. -- with lehman brothers, and we came through with flying colors. we want to make sure we have adequate capital and liquidity so much to the extent that you would never question j.p. morgan. we believe we have that kind of capital. >> your current tier one capital is approximately one of the $28 billion? >> approximately, yes. >> i would like to conclude with a discussion of the volcker rule. some have said it is not possible to distinguish between proprietary trading desk and hedging. clearly, that is what the volcker rule contemplates and if we implement it is what is when be imposed on banks like

yours. could you discuss whether we can't distinguish between proprietary trading -- whether we can distinguish between proprietary trading and hedging? >> i think it would be hard to make a distinction. you could look at almost anything we do and call them one or the other pair every loan we make is proprietary. if we lose money, the firm loses money. if we buy treasury bonds and they lose money, we lose money. i have a hard time distinguishing it. i understand the intent of the volcker rule, to reduce activities that could jeopardize a big financial company. i think the devil is in the details in how these rules are written that allow the good of our capital market and not the bad. >> tell me for a minute how you would describe that. what is it proper hedge in the context of the volcker rule distinction we are trying to

make? >> something to protect the company in bad outcomes. you can't analyze that. it is not exactly right. -- you could analyze that. it is not exactly right. i believe you should be able to do portfolio hedging and there are ways to protect the company for that outcome. >> is that something like going short? >> going short credit if you think there might be a credit crisis would be one way of doing that, yes. >> senator. >> thank you, mr. chairman. the issues raise go to the ability of large financial institutions to manage risk and complimenting that is the ability of regulators to oversight the management of risk by those corporations. i think it is also a strong case in my view for a very clear

but very strong volcker rule, and also force stand in up -- standing up a director of national research, and i've been talking to chairman tim johnson and ranking member richard shelby about that. this question goes to your proxy materials. risk-management seems to be the responsibility of the office of risk management which is different than the cio. was this individual, and i know there were several changes, monitoring the cio on a regular basis? did he or she approve the change in modeling? >> every business we have has a risk committee. report to the head of risk for the company. there are conversations between

the risk committee and our senior operating group about the dangers. obviously, that chain of command did not wrote -- working in this case because we missed a bunch of things. you could blame it on anyone in the chain. there is an independent group that looks at changes in models and we do change models all the time. models are backward-looking toward the future is not the past, and there never -- looking. the teacher is not the past, and they never captured changes in been geopolitics or things like that. we do not run the business of models. models are one input. you should be looking at lots of other things to make sure you are managing risk properly.

>> did you share with or did the occ inquire about the change in the modeling, and for the record, this change was just in the office of the investment, correct? >> there was a change in the office of investment in the january. model -- did you not change the model firm-wide? >> the firm has hundreds of models? -- models. >> let me get back to theocc, were they aware? >> i do not know particularly in this one. >> if the chief investment officer response is to put risks in other structural risks, which is essentially their job is risk management, not

generating profits by investing deposits. it seems that there model was loosened up considerably, giving them the opportunity to engage in more risky activities. is that your conclusion? >> in january, the new model was put in place that allow them to take more risk and it contributed to what happened. we do not as of today believe it was done for nefarious purposes. we believe it was done properly by the independent model review group. there might be flaws in how it is implemented, but once we realized it did not accurately reflect reality we went back to the old model. >> it appears from looking at some published reports that essentially these credit default swaps were first made to protect your loans outstanding, particularly in europe, and that was in the 2007-2008 time period.

that is classic hedging. europe gave credits, they go bad, you want to ensure yourself against that. then, in 2011, 2012, at some point, the bed was switched, and in spite -- you started selling credit protection, which seems to be a bet on the direction of the market not related to your actual credit exposure in europe, which looks a lot like proprietary trading designed to generate as much profit as you can generate, which seems to be inconsistent if this is simply a risky operation and you are hedging a portfolio. how do you be on both sides transaction and claim you are hedging? >> i think i have been clear

with your original intent. i am not going to try to defend. under any name, i will not defend it. violated common-sense. i believe the people doing it thought they were maintaining a short against high-yield credit that would benefit the company in a crisis and we now know they are wrong. >> that leaves us in a situation where how -- of how do we build in rules and regulations that prevent well- intentioned, extremely bright people that do things that are very detrimental? first of all, you're lost several billions of dollars -- you've lost several billions of dollars and a significant amount of market value to your shareholders. the irony to me is is there was a good volcker rule in place they may not have been able to do this because it does not seem to be hedging customer risk

for the overall exposure of the portfolio? >> i do not know what the volcker rule is. it does not been written yet. it is very complicated. it may very well have stopped parts of what this portfolio morphed into. >> there is a possibility that it could have avoided this situation? >> it is possible. i just do not know. >> thank you very much. >> senator corporate -- senator bob corker? >> thank you, mr. chairman, and mr. dimon. i wish we had had these hearings prior to the passage of financial regulation, and one of the good things that has come out of this is a lot of folks on the committee have focused on issues that are relevant and that part of this has been positive. mr. dimon, you mentioned the biggest risk of bank makes is making loans, is that correct? >> yes.

>> what would happen in an institution like yours if you had $700 billion in loans, and you did not have the ability to hedge that risk in ways that made sense, not the way you did it? >> there are two things. he might reduce the amount of risk you are taking part >> which means less loans? >> you might make less loans. that might change the price of loans in the marketplace. i think more than that is you would not be able to protect the company from a systemic event. we want to protect j.p. morgan from systemic events. we know they happened. i want to survive good times and bad times. the balance sheet alatas to do good things in 2008 and 2009 for clients. we could not protect ourselves clients. >> you have made it clear --

protect ourselves and clients. >> yet made it clear there was no way for regulators to catch this? >> it would have been very hard. there is always continuous improvement, but it is hard to have an unrealistic expectation that you could capture things like this. >> a banker is always going to be ahead of a regulator, basically, and you give them the information they are using to regulate so it is not realistic to think that the regulator is going to catch this. one of your peers was in yesterday talking about the fact that dodd-frank has really missed the mark. we have this huge amount of regulation taking place at the institution and what we should have done is look at regulating the markets themselves. much of what happens in the market takes place out of

regulated entities. let me ask you this question, has dodd-frank more than marginally made our banking system safer? >> we supported some elements. >> i know what your -- what you supported. has it made our financial system safer? >> parts of it in conjunction with higher liquidity, the financial system is safer today than it was in 2007. >> i understand we have larger capital. i am talking about the regulatory regime that congress put in place. has it made our system safer. >> i do not know. >> one of your peers, not quite as well known as you, believes not, and we looked at the 20 largest institutions in the world since the 1990's.

16 of the 20 are either government-owned or have had tax payer money injected into them. so, you look at what we have done, and many people are coming out with all kinds of models now, the glass-steagall is being talked about compared -- talked about. would you share with the committee the purpose of a highly complex institution, what societal good an institution like yours is, and what our institution would be like if you did not have these institutions? secondly, you are renown as being one of the most -- one of the best ceo's in the country for financial restitutions. you missed this. are these institutions today just too complex to manage and the fact that 16 of the 20 have had injections, what does that say about a highly complex

institution like yours? >> so, we have a hugely complex economic ecosystem. there is a place for large companies and small companies. for people like us, we bank companies in 40 different countries. the trade finance, we do intraday lines to some of the biggest companies. we can raise money for america's fortune 500 companies in a day or two when they need to do something. we are the largest tanker to banks. we extend credit to smaller banks and they need some of that.

we can't do all things community banks can do in their communities. i look at it as you need all of these things. there are some negatives to size. it brings diversification. diversification was a source of strength, not a source of weakness, during the crisis. data centers, or security, some of the things you want to do, but there is a negative to sites -- greed, arrogance, hubris, lack of attention to detail. but if you do a good job, clients are insured and you when your business. if we weren't doing some of these things for large, global american companies, somebody else would. that's all. they buy these services because they need them, not because we want them to buy them. we provide huge credit lines to them. >> you believe a highly complex institution is necessary and if you were not doing what you were

doing, some other people some other place would be? you are also unsure whether dodd-frank has made the system safer at any level. if you were sitting on this side, what would you do to make our system safer than it is and still meet the needs of a global economy like we have? >> the biggest disappointment i had as we never actually sat down, republicans and democrats, businesses and had detailed conversations about what went wrong and what needs to be fixed, to focus on what needs to be fixed. we still haven't fixed the mortgage markets, which is critical to the added states of america. we haven't fixed other markets. there is no the subprime or other vehicles. we could have a great financial system. the american business machine is the best in the world.

we are all blessed to have it and we should focus on getting a work to get as opposed to shooting each other all the time. >> thank you for calling the hearing and thank you for being here. >> thank you, esther chairman. i list -- thank you, mr. chairman. to paraphrase the city -- to paraphrase shakespeare, to hedge or not to hedge. that is the question. you call these trades at lost anywhere between $2,000,000,000.4000000953 dollars economic hedges, a tempest in a teapot, which i understand you regret. but it does not create a loss without a corresponding gain, which is why you are hedging. what seems to me to have happened here is you are pursuing a synthetic loan

portfolio selling credit default swaps which was a toxic instrument that cause the big part of our challenge in 2008. when you reduce a hedge or hedge a hedge, isn't that gambling? >> i don't think so. >> this transaction that you say more, what did it more than two? russian roulette? >> it morphed into something i cannot justify. concern. the real too risky for your company, one of the bassist -- one of the nation's finest, largest capital banks. if it's too risky for your company, with stops it from being too risky were you in this not to billion dollars, up $50 billion. a size that creates a risk on

the bank and takes that bank in the possibility of a run and becomes the collective responsibility of each and every american? that is what we are trying to prevent. i have heard you talk about the balance sheet and that led to year you say that we should take comfort that banks are more collateralized. but in saying so, one way to think about this is i wonder if you regret calling the efforts to require banks to hold more money but american and putting the nail in the coffin? today, you cite the fortress balance sheet of your bank as a way to prevent against the challenges, get you railed against us when we were in fact trying to pursue greater capitalization of these banks. is that eric wright you have? >> i don't think what you said is true. i supported parts of regulation

and reform, higher capital and high liquidity. we support and oversight committee and clearing houses. we support proper transparency and a lot of the things you requested. we did not fight everything. when i mentioned the anti- american thing, i was talking about between dodd-frank and basel, things being skewed against american stocks. american banks can have qualified stocks -- >> you did not say as per your un-american comments that the requirement for banks to hold more money was un-american? >> i did not. >> i would be happy to look at that again. i think you might want to review that because what you criticize then and what your bank has been lobbying extensively against is the very types of protections

that, at the end of the day, can guarantee the american taxpayer doesn't become responsible. i think about the fortress balance sheet you are talking about and i would like to remind you that as a moat that by taxpayers to the tune of $25 million in bail money and more than $450 billion in loans from the fed. it seems to me the american people are a big part of helping to make your bank healthy. the one thing they would seek in return is to ensure you are now working against the very essence of what are legitimate efforts to control the risks so that you can prosper and your shareholders can prosper, but the same time, it does not become the collective risk of taxpayers in this country. do you not think that is fair? >> i want a strong financial

system, like you do. we supported a lot, thousands of rules and regulations. we give you informed advice on some of them. there are some that we don't think it makes sense and we feel we are entitled to tell you what doesn't make sense. >> you are entitled to tell us why you don't make sense but i also think the american people after making major investments in your institutions are insured they don't have to reach into their pockets again. >> i appreciate you voluntarily coming in to talk. with talk to is important that we talk about things happening in the industry. it helps us as we look forward and hopefully it will confront -- contribute to a best practice in the industry and we

appreciate your continuous cooperation. we can hardly sit in judgment of your losing $2 billion. we lose twice that every day here in washington. we plan to continue to do that every day. it is comforting to know that even with a $2 billion loss in a trade last year, your company still had in $19 billion profit. we lost over $1 trillion in that same period. if we had a call back provision, none of us would be getting paid here. the intent today is not to sit in judgment but to maybe understand better what happened. some of the questions have been very helpful. as you can tell, there's a temptation every time something goes a mess that we want to add a regulation. we have surrounded the banking industry with so many regulations and we still seem to have problems here and there. i think we need to recognize that you are a very big bank,

the biggest in the world. you've got very big profits and periodically will have big losses. we need to look at that as part of doing business but also in the context of making sure, as the senator just said, that we don't create additional risk for the taxpayer which you appear to be in much better physical shape than we are as a country. when no risk is required to make a profit. you are dealing with a lot of capital you have to put to work which certainly will experience profits and losses and general you done pretty well. i want to follow up on senator corker asking about the dodd- frank regulation which a lot of us are concerned about. a lot of us are frustrated bank managers and want to manage your business for you. we're not capable of doing that for what we have been given to manage. i would like to come away from

the hearing today with some ideas of what you think we need to do, what we may be need to take apart the we have already done, to allow the industry to operate better and at the same time not put the american taxpayer at risk. we are honestly looking for some ideas as we look over the next year and hopefully we will be in a position where we can make some positive changes. >> the only real suggestion i have is i believe in strong regulation, not always more. we set up a system with more and more regulators, don't know who has jurisdiction over these areas. sometimes we deal with four and five regulators. i would propose a simple, clean regulatory system with intelligent design and that is not what we did. we created a complex system that no one can adjudicate between the various regulatory agencies and is not clear to me

has the responsibility or the authority. >> in many industries i have worked in, they get together as peer groups to evaluate best practices and share information with each other. is that something you regularly do with your peers, other banks around the world, as to how you deal with risk and how this committee's work? is that going on? >> we used to do more. we're constantly asking for feedback from regulators and send them a lot of analysis and detail. there is less collaboration among banks and regulators and among legislators than there used to be. it has become more adversarial. >> as we have seen, laws and regulations are not necessarily improving things. some of the things you have done voluntarily and some of the capital requirements, and i think it best practice, if we

can do anything to encourage the industry to develop a lot of its own voluntary rules, that would guide us a lot better. if i could just leave you with anyone think, if you can come back this time next year and talk about how the industry has put together a large scale best practice committee that would help us keep banking as a private enterprise rather than as a government institution. thank you. >> senator brown. >> you have some 19,000 employees in the columbus area who are also my constituency we have a mutual interest in your institution running safely and soundly. i don't want to see consumer lenders in columbus losing their jobs because cowboys and london make too many risky bets. i want to ask you a series of brief questions. if you can possibly give a yes

or no answer, i would appreciate that. to start with, if you could just give a yes or no, did you personally approve of the chief investment officer's trading strategy? >> no, i was aware but i did not approve the. >> did you personally monitor the chief investment officer? >> generally, yes. >> last week i asked in a hearing about a series of questions of the occ about their oversight or lack of oversight of the trades in question and i got their answer this morning. their response was okay but a bid inadequate. they say they have five examiners and london who essentially divide part of their time examining your operations, the portfolio of assets in question. it is reportedly about $200 million which is bigger than the vast majority of banks in the united states.

in april, one of your executives told investors that the treaty question were fully transparent to the regulators as part of our normalize reporting. the occ letter says the occ examiners were unaware of the level of risk occurring at your chief investment officer until april. was the occ told about the trades taking place in your cio office prior to the april 6 report? >> we tried to be very open with regulators. we give them reports. they get some reports. we give them what they want. in this particular case, since we were misinformed, we probably misinform the them. the mistake we made we passed on to them but the second we found out, the first people we got up on what was their regulators to explain a of a problem and would describe it to them and they have been deeply engaged since then.

>> that was april 6. april 13, earnings call, or they told about the trades prior to their earnings call? >> i don't know. they get some of our reports but we probably -- because we were misinformed, werobably continued to misinform them. once we found out, among the first people we call for our board and regulators. probably not even in that order. >> the issue is partly your side and the occ side. do you know if occ enquired about trades at these five regulators back and a york, did they inquire about the trades prior to the earnings call? >> i don't know. >> can you tell us at what point did occ take steps to challenge the trades? >> i think the second they understood the significance of the trades, they started to challenge every day.

and they continue to appear in >> is 5 regulators in london enough? >>but i don't know the answer but in this day and age, they get all the reports from london and they do it by telepresence. they serve global clients. they do with a lot of middle- market companies and innovate and run call centers. the process are credit cards which we ship around the country. those employees are not his doing ohio-based business than i understand and appreciate that. since 2007, your chief investment office has ground. occ says that your activities were not historically considered to be high-risk but they go on to say that a similar level of activity or situation, large hedges that are a liquid and very complex, is not present in other national banks for other large banks to not conduct -- credit derivatives in the

size and complexity that jpmorgan has. should occ have been more focused on trades of synthetic derivatives? >> i think we should have. if they stopped others from having this problem, i would have been happy with that. >> if your bank did not have $2.30 trillion in assets, would your c i o [unintelligible] need to be to the $370 billion? >> most of that represents deposits. we bought wamu and we had more cash. we have like 1000 small bankers wamu so we have become small- business lenders. other than this one thing, we invest assets conservatively.

>> center corker made a statement in moment ago and offered the question for the observation that raised the possibility that this hit -- jpmorgan chase may be too complex to manage which begs the question, is it too complex and too large to regulate? in 13 years, jpmorgan has quadrupled in size to $2.30 trillion today. there are six american banks at $800 billion and above. over the last five years, you're grown by $400 billion. this case demonstrates that in a practical matter, neither you or the occ could monitor what was happening in a chief investment officer. if it were standing alone, it would be the eighth largest bank and united states. we have a $3 trillion bank and it appears from listening to you and your comments from

watching what has happened in talking to the regulators and saying the occ response, it appears executives and regulators cannot understand what is happening in all these offices at once. it demonstrates to may to big to fail are too big to manage and to big to regulate. i yield back. >> johans. >> let me say thank you for being here today. i have listened to the various questions about the trade. i think this summarize everything you have acknowledged. it was definitely a dumb move. all losses on for some and you have apologized for that and what is true that. i want to ask you about some

things may be at a 25,000 foot level. how many regulators do you have on site in your organization from some federal entity? >> i believe there are hundreds. and it is across multiple regulators. >> when something like this pops up, are the channels clear anymore as to who you deal with and who is regulating what and who you need to be paying attention to? how you deal with that? >> we're always going to treat the regulator the way they deserve to be treated. whatever the system as we have to deal with it. we have people who are aside specifically to deal with regulators, the fdic, and others. we do with all of them. on this particular issue, the first three are always engage

them how much of a regulatory costs increased as a result of dodd-frank, the volcker rule, whatever it is? >> i have estimated roughly -- we're talking about $1 billion per year across systems, technology, compliance, it cuts across everything, maybe 8000 programs. the rules, the brussels as well as the u.s. and u.k. we will do all those things, meet all the requirements but it will be a little costly. >> one of the things that i have maintained in many hearings as we have examined the dodd- frank before and after its passage is that there's just a point at which economically, better business to do business elsewhere than the united states. to run that risk with dodd- frank that literally we have

made life so complicated, so hard to navigate through that you have enterprises who decide that i will just go to singapore were ever to do business? >> we will be find ourselves. we will be able to navigate all that. i talked a lot of business people and many people say is easier to be overseas. several companies have moved overseas recently. >> my concern is that it does not stop there. what i saw about dodd-frank, we started out with a laudable purpose. let's figure out what happened in 2007 and 2008 and had we fix it and co-ops for showing up in my office and asking me what i'm doing. how did a farmers' co-op have to do with anything that happened in those years?

i have not verified this because somebody just told me this last night. maybe you are aware of it. somebody who worked with his banking committee mentioned last night at an event i was at that there had not been a single bank charter last year in the united states act and it had been 78 years since that had happened. do you have any information on that? >> i was aware of that. >> -- i was on aware of that. unaware. >> you've got a lot of firepower and you are just huge. we will find a way to navigate what has happened here. you're not located in my state and i doubt that you're probably considering -- probably not located in my state although it is a great place to do business. >> maybe we will be there one day. >> what i suspect is happening is that our medium to small

banks are now trying to navigate through this very complex legislation. these are banks for maybe they employed a dozen people or two dozen people and they're just going to give up. what is your impression of that? >> we back with a lot of smaller banks and some of these things are harder on smaller banks on some of the larger banks, unfortunately. >> senator chester. i appreciate you hold in this important hearing. >> this gives us a better chance to understand why j.p. morgan committed egregious mistakes from a poorly constructed hedging strategy. of like to focus on role leading up to the end of global bankruptcy. >> jpmorgan had significant

signs about the health of the firm, mf global, and its firm ae these funds. throughout -- though their customers have received about 72 cents on the dollar back, the fundamental press that many farmers and ranchers had in the system had been broken because of the firm's violation of a law and failure to segregate client funds. we have new information on the release of ms global trustee, james gibbons, and his investigation and recommendations last week. we absolutely need to get to the bottom of this issue to make sure that ranchers and farmers

find those responsible for those accountable. over 100 of my constituents have their accounts rated to cover the firm's institutional losses. if anyone is the implicit, i want to know about it. mr. gibbs announced the return of approximately $168 million in cash with proceeds of excess collateral that your firm held at the time of the liquidation more than seven months ago. why did it take your firm seven months to return these funds? >> we immediately went to the trustees and the courts and told them exactly what we had in did not have. we were waiting to collect the work before returning it to them. we cooperated every step of the way with the authorities >>

there was money released when amoco will, but there was $168 million determined to be held for seven months. why? it was their money, it's to have gone to them? in -- it should have gone to them. >> we were not deliberately withholding the money. >> i and signaling your company out, highlighting the conversation for potential litigation that he may bring against jpmorgan chase, it is clear that in the final days, they had " significant concerns about the health of the firm and collateral. in according to the

investigation your firm took steps to protect itself and its exposure to end of global, placing an of global on debit alert -- mf global on debit alert. despite the risks as analyzed by your firm, to determine whether collateral for the $175 million transfer was in compliance with the rules regarding the segregated funds account, they did not sign a comparable letter, the one that your firm demanded. without this confirmation and your suspicions, jpmorgan chase a ultimately transferred the funds and accepted the collateral. were you aware of the effort by senior risk-management and officers at your firm?

why did they relent on signatures of the letter to allow the transfer without insurance? >> the treasurer was not required to do that. >> what you're saying is that even though you had placed a math global on debit alert and had increased their collateral requirements, when they ask you to transfer the money, there was no conversation as to whether this was segregated funds? you just transferred? it was within your institution that they requested a transfer? >> it was probably overdraft. >> the question is, the real question here is you were concerned about global -- mf global. you what was going down with them, you put them on debit alert.

they had requested money to be pulled out of your facility to be sent to another facility. there was some question by senior management officials in your firm as to whether this was segregated money. in your words, the hedging was to protect the company from bad outcomes. can you tell me if jpmorgan had any obligation to protect those funds? >> they had an oral cut -- confirmation and went bankrupt. >> is that general operating procedure? >> general operating procedure is not to ask at all. they are responsible for making sure customer funds, using an excess of caution, even when a company is going belly up? >> that is what we try to make sure and help at that point in time. >> i appreciate that. my concern is that there were a lot of farmers who had hedged to

protect themselves from bad outcomes. if this money was transferred and segregated money, there is a real problem, that is all. just looking out for my folks. >> i hope that they will, by the way. >> ok. i just want to make sure that the individuals that are held responsible -- i want to thank the chairman for flexibility and time. thank you for the hearing. >> senator moran? >> thank you for being here voluntarily, mr. dimon. you responded to something that was good about smaller institutions and things that create problems in larger institutions. i do not have that list in my memory yet, but how do you manage a company the size of jpmorgan and overcome that list of entities that you described, which are just a natural occurrence within a large

organization? >> it can occur within smaller organizations as well. >> surely you are not talking about the senate. >> definitely not. not now. [laughter] look, i think that all companies want to have great employees holding down, analyzing, and challenging yourself. those people are very honest. i think that the ways you can avoid negative views and your company, hopefully we have fostered the right kind of culture at jpmorgan. there are people who think we're there to serve clients, which is job number one. we do it every day around the world in 2000 different communities and we hope that people believe that and that it is in their hearts to treat people the right way. we asked them to treat people the way that you would treat your parents. if you see a problem, raise your hand and call the right people. we constantly try to improve

services and deal with legitimate complaints. we try to fix them. >> how you manage jpmorgan is the business of your board of directors and shareholders, but it does have consequences to those of us who believe in the free-market system, values of that, and merits. i hope that, and i have the sense that this is a responsibility the you understand, protecting the american free enterprise system, how jpmorgan and every company, large or small, conducts themselves in this exhibit and it matters in our ability to be an advocate for a free market system that creates jobs and economic opportunity. anything i am missing? >> i could not agree more. blacks our ranking member often talks about sufficient capital

as the greatest deterrent towards too big to fail and systemic risk. i certainly agree with that. one of the other components involved in making certain that taxpayers are not responsible for the demise of a company like yours or financial institution like yours is the so-called living will. will you describe to me the process that jpmorgan has gone through to develop that living will? how transparent it is and what role the regulators play? what evidence, if we saw it developed through jpmorgan, would give me or others satisfaction that your company could be dissolved without a call upon taxpayer dollars? >> we would have to get rid of anything that looks like too big to fail. we have to allow institutions to fail. it is part of the health of the system. they should not be propped up.

you want to be sure that they fail and not damage the american economy and public. a big bank that is allowed to fail, i would not call that a solution, i would call it bankruptcy. when you have bankruptcy, there should be clawback. i would wipe out the equity and the unsecured recover what they recover in a normal bankruptcy. this starts to put the structure in place. the living will, giving information. you go around the world, it is ever more complex. the fdic is taking down large banks without damaging the public, including washington mutual. it is updated. they need to know what happens to this or that legal entity and what will you do if this thing happens? we recently filed an analysis

and report, how to go about closing down jpmorgan without harming the taxpayer. if the fdic ever puts money in, you can basically stand for the name being buried in disgrace. that is some old testament justice. there is money, like today, that should be charged back to the other big banks. i know that the government program is paid for 100% by jpmorgan. during this process, we will pay them $5 million. as far as the health from the other big banks to collaborate and make sure the rules are in place, it is to make sure that we do not damage each other. >> if jpmorgan became a big dump banking, is your sense that it would be -- you do not want to use the word dissolved, but the certainty would be included with

jpmorgan's demise with no cost to the taxpayer? >> yes. >> senator kohl? >> thank you. mr. dimon. i understand that jpmorgan is lending more money to businesses, and i appreciate that. however, your bank's lending is not keeping pace with the deposits your taking in. last year jpmorgan reported that it had $1.10 trillion in deposits. more than any other bank in the united states. the others reported loan to deposit ratios that were higher than your banks. seems like lending to american businesses would be less risky than what was being done in the london office. >> if you make it lower than

your peer banks, you are perhaps prioritizing these risky trading activities over lending. can we hope that you are going to focus more on lending in the american market? >> we are making all the good loans that we can. we are a global money center bank. meaning that we have deposits from governments around the world, from sovereign entities and large corporations. we have several hundred billion dollars, right now, like a said, in central banks around the world. we are a bank that needs huge liquidity fund's. >> i understand. i think that the records indicate that your report has a loan to deposit ratio from other big banks where they have reported loan to deposit ratios

that are 10% to 20% higher than yours. that would seem not to square with your statements that you're wanting to lend, but do not have the customers to lend to. >> we are up to 12% on average of the last few quarters. large corporation loans and change all the time. for mortgages like last quarter, that was a huge number. what i am saying is that we are not like all other banks. we need to keep a lot of cash around to deal with the immediate cash demands of the people that work with us. they can move 5 million or $10 million in a day. >> i appreciate that. one final comment, again, the biggest banks you are competing with are described in the same way you are describing yours. they have loan to deposit ratios that are higher than yours.

>> those are different for historical reasons. >> senate offices like ours often hear from constituents trying to get a modification on their home loans or stave off foreclosures. they typically come to us because they're having trouble getting through to the lender. it is common for our constituents to say that the bank lost their paperwork. four years since the crisis began, we are still hearing about these mixups. as a constituent, just one of money, i am sure, who had a loan with jpmorgan, "i do not want to lose my house because they cannot keep their paperwork straight." by have banks been unable to sort out these problems? >> constituents should not lose a home because we failed in paperwork. i will file on that one right

away. we have 20,000 people the deal with the fault modifications. 1.2 million loans, with alternatives to foreclosures. we are doing a better and faster today. i have to confess, we are not -- we were not very good at it when the problem started. we were overwhelmed. >> i am sure that we agree that the cio office carries out complicated transactions and that you employ some of the smartest people in the industry to work for you. your bank undertakes such complicated business on the other hand, but oftentimes you and other banks cannot seem to do something as simple as straighten out your own paper work. does the plight of the american homeowner have the same attention? or should it?

>> yes, it should. we should do it properly. for anyone in this room who has issues, followed up with constituents, send it to the governor and he will take care of it right away. >> thank you. >> mr. chairman? >> senator? >> this has been very instructive to the public and members of the committee. i think you told senator shelby that the purpose of hedging is to earn a lot of revenue in the event of a practice. i think the said that it worked to extend in 2008 for your company. can you quantify the extent to which hedging worked in 2008? >> i have what is called the 2008 year. there were $78 billion in income in those three or four years.

we could follow up and be more specific. >> i think that that is probably what we needed to do. with the poker rule, you also said he did not -- did not even know what it is. if you do not, we do not either. but i think you know how it is being drafted. as currently drafted, how would that have affected the cio ability to prevent that hedging in 2008? >> i think you allow the portfolio hedging in the current structure, but what it more into? i do not know. we should step back for one second. the important part of the rule is not hedging, it is the ability to actively make markets raise capital for companies and clients, as well as investors. we have the widest, best, deepest and most transparent capital markets in the world. the capital markets of america

are part of the great economic ascension. we have the best in the world. we should recognize the best. capital markets, the cast -- the cost is one-tenth of what it was years ago. the cost of doing interest-rate swaps is one-tenth of what it was years ago. if there are any investors or buyers of social security's at a cheaper price, it means that day, the people that they invest for are doing things cheaper. that is a good thing for them. it also allows corporations to issue debts cheaper and quicker. it can be done in the day, around the world, at a cheaper price. it benefits both investors and issuers. the secondary markets and

primary markets are directly related. if the costs are low here, if consumers and investors are educated by companies, then these issuers can do it. the person that fidelity is investing for, most retirees, mothers, veterans, state and municipal plans, it is a good thing. the volcker rule, when it came out, we have urged people who work in a binary, more or less, to have a traffic law. some street should be different. some lights should be bright. it would be a shame to shed that out of anger or something like that. remember, if we're going to make markets out of liquid securities, we need to own that

for a while. we need securities the you may not want to sell tomorrow, but we need to sell right now. we make a little bit of money every time that happens. the thing to ask is to go through the detail to make sure that we get it right. i do not want to be sitting here in 20 years trying to figure out why it is elsewhere. >> i hope that you can appreciate that i only have five minutes. >> no need to say it. that is fine. >> this second round here, you told the senator that the financial system is safer today. you cannot say that dodd frank has helped at all. you went on to say that the regulation regime is not necessarily stronger today, but it is more complex and you do

not know the jurisdiction. >> i think that some of the things in thought frank made others safer, like higher capital, better liquidity and risk-management. many of the things that closed the problem do not exist anymore. that was because of markets, regulations, subprime mortgages. >> you said something else that caught me by surprise. that was this testimony that nobody got all the parties in a room with people in your industries. democrats talked about what was needed and what needed to be fixed. did i hear you correctly there? did you volunteer to be part of that conversation? >> we said we would do with every wanted. we would get apartments down here, go through the details.

we spoke to a lot of people. in the and that is where the real collaboration should have taken place. i think it would have been better if there had been more collaboration at the end of the day, shaking hands and moving forward. >> following up with a question for the record, let me ask about the living will. are you telling this committee that jpmorgan chase has a living will that has been approved by the government? >> no, we have drafted, circulated, and given it to regulators. they will be responsible for going through the several iterations to get it right. it will take a little bit of time. >> thank you. >> thank you, mr. chair. thank you for coming before the committee. 2008, 2009, your company

benefited from half of a dollar -- half of $1 trillion in loans and funds. on told indirectly through the bailout of aig to address your repurchase agreement derivatives. with all of that in mind, would jpmorgan have not gone down without the massive federal intervention, both directly and indirectly, in 2008 and 2009? >> i think you were misinformed. that misinformation leads your problems today. jpmorgan was asked by the secretary of the treasury of the united states of america, with the chairman of the federal reserve. at that point we did not, and we were told, correctly, that some of the banks may have needed it, to take it to get it over to the banks to stop the system from going down.

we did not borrow from the federal reserve except when they asked us to. they said to please use these facilities. we were not bailed out by aig. afg itself may be had a direct loss. >> you have a difference of opinion with many analysts in the situation. >> this is not your hearing. i am asking you to respond to questions. i also only have five minutes. let's agree to disagree. i think that many analysts reached the conclusion that if you apply the federal justice in 2008 and 2009, you have been out of a job. it goes to the enormous frustration -- how many companies in the history of the planet have been offered half of a dollar trillion in low- interest loans. not many. the basic concept behind a firewall is that banks are in

the ledge -- hedging business. do you share that basic philosophical orientation? >> we are not in a hedge fund business. >> ok. wanted to turn to the report from a few days ago. it purports that jimmy diamond created the cio and chief investment officers and had the report delivered directly, mostly previously in government- backed securities with a higher yielding assets. according to the half of a dozen former equities in the company. sounds like offering hedge funds at your direction with government this -- government redistributive funds. >> you're the facts. the average rating is double a- plus. the average maturity has a duration of three years, not 20 or 30.

the average yield is 2.7%. those of the characteristics of a young consumer portfolio. in addition to that we have $150 billion in central banks around the world. making of loans to deposits that are considered conservative and not aggressive. in other areas, this is a legitimate complaint. >> david olson said that they wanted to ramp up the profits for the firm. that it was the new vision for the company. you would fundamentally disagree that that was your construction? >> i would hope he would not read that. >> you do not disagree? >> i do not know what it means. >> here is the general picture that emerges. expanded fivefold over four years, with numerous executives testifying that at your personal direction, they were to invest

and hire yielded assets. and yet when those bets go bad, instead of taking responsibility, he blamed it on the unit that he set up. should you not have taken personal responsibility, since they were following your personal game plan? >> it is an unrealized gain. i already said that the synthetic credit is why i am here. the buck stops with me. >> the heart of the volcker rule addresses liquidity management in the funds in between loans, that they should be invested in treasurys or government-backed instruments. taking those same deposits and putting them into high-risk investments and credit derivatives is a fundamentally different strategy than the one laid out. i am puzzled by your comment

early on the you are not sure if division laid out for the firewall between hedge funds and banking would have prevented the type of operation you set up. >> $350 billion was considerably done. it was a nice, a conservative portfolio. we will not do something like thatgain. it does not stop us from doing the good stuff. we are doing what a bank is suppose to do, and we do it every single day. >> from what you are saying, your this team going forward with surplus deposits being managed, they will be returned to the strategy of relatively safe, relatively liquid investments, rather than operating, if you will, in the derivatives world? >> the current strategy is relatively safe, relatively liquid. >> thank you very much.

>> i understand that we have two votes beginning at noon. >> senator? >> thank you, mr. damon -- mr. chairman. , for you, yomr. dimon being here. unfortunately, i think that a lot of dog frank has been more regulation. -- bob franken -- dodd frank has been more regulation. another way i might put it is i think we need more systemic changes, less micromanagement. the big systemic changes that impact will we're talking about our capital requirements and the poker rule -- will volcker rule.

when you criticize capital three previously, part of the criticism was higher capital requirements for bigger banks. is that correct or not? >> it was more about the details behind it. going to the crisis, 7% was tier one borrowed capital. those capital ratios never went down. they were at 10%. there is an issue of how much capital is enough. we never argue about having more capital. some of them make it harder. there are particular complaints about how the [unintelligible] should be done. >> do you think that they should

have a clearer prior capital requirements? >> compared to the floor for the bank of -- as big as yours? where should that be? >> looking at it down the road, that is plenty. it does not create confusion. >> you do not know what the real requirements are yet. >> clearly, requirements are beyond me. >> you let the regulators have time. this is not a once in a lifetime change. what we're worried about is capital confusion. when we like it there? how will it be evaluated? that is not conducive to lending. it is conducive to the capital reduction balance sheet. >> in switzerland they are

requiring 19% of their two large banks. >> 19 is not -- comparable to my 10. >> it is much higher. i do not remember the number. those banks dwarfed the size of those countries. >> at the poker rule -- the volcker rule, is there a true implementation? >> i think they have really struggled to get it right. it will be hard for the regulators to come up with rules and make it for market makers -- >> i am asking about if you started with a blank sheet of paper, would you support a properly designed version of the rule?

or should there be no such trouble? >> you think it is basically a necessary? >> if you set the intent in the company, i think that there are ways to do that. i think it is just too confusing. >> what about systemic, simple regulations in doing that? >> proper capital and liquidity. make sure that age and inventory turned over for proper controls. >> i strongly endorsed the overall concept of not more regulation, but stronger and smarter regulation. i am concerned, kind of like the reaction to the crisis, i do not think that the solution is that

we're going to have release smart regulators this time. quite frankly, my concern about some of your testimony about the reaction is that i sort of hear the tone in your reaction. that we will get it right this time. i am wondering if there should not be a more systemic change in the company to avoid this. are there any more truly systemic changes that have occurred? >> in our company? >> yes. >> we will make sure that there are no other images -- instances like this. >> have there been more broad scale systemic changes within the company in direct reaction

to this incident? >> we do think that it is isolated. >> thank you. >> the staff tells me that they will hold up the vote for a few minutes. senator? >> thank you for holding this hearing. thank you for your forthright testimony, mr. dimon. i know that you encourage your company to raise their hands when they see something going on, and i appreciate your doing that today. i would like to get some perspective on the size of the trade. we saw reports about the london well and investors talking about strange movements. how can it be available to come

to the vantage of shareholders and regulators? >> my first ever job is to protect my company and manage it. i do not want to hurt the shareholders. some of the public information is accurate, some of it is not. it was a complex series of trades, not just one single thing. managing numbers are down. we should have caught it earlier. it should never have gotten to this size. >> let me talk about [unintelligible] in may, jpmorgan changed how they do their calculations on what could be lost in a single day. can you discuss the rationale for making those changes?

when were those decisions made? >> the old model had been effective from january 15 of this year. the new model has been put in place. april 13, there was no reason to believe the new model was not better. on the 10q file on the fourth, between the last week of april and the first part of may, we realize that we have a problem with the model. we filed the on the 10th. we corrected it and made announcements that were wrong, putting the model back, more accurate than the new model. making that disclosure to shareholders the best we could. >> can you explain why the new

model failed to predict the magnitude of losses in this case? >> both of these models back tested better than the old model. this was a statistical testing of what would have been more accurate. the future is not the past. things change. credit spreads, high yields verses and -- investment spreads, from april and may, like the new model. >> the banking regulators are considering a move to an expected shortfall? the move will provide regulators and investors more information. >> i do not know. i said, it is one measure.

it is important that people stress test properly. measurements cannot rely on models. there is judgment, knowledge, and experience to be learned. >> in your testimony, you indicated one of the reasons that the chief investment office started adding positions was reducing the risk in anticipation of the requirements. can you explain why these positions would be problematic? >> if i remember, the cleared asset positions were about 20 billion. three was recommended as something like 60 billion. it was an ineffective use of the

assets over time. >> why did the other units of the bank not experience similar reductions? >> there were other parts of the company with an ineffective use of basel iii. sometimes it is driven more by the customer than our own decisions. >> thank you. >> mr. chairman, i would like to thank you and the ranking member. thank you for being here today, mr. dimon. in last. i suppose that there is a second round, and being less is no fun because everyone has answered the questions before. i very much appreciated your response to the observations about the difficulty borrowers are having with response from some of the largest banks.

i will take you up on your offer on the behalf of colorado and say that anyone listening to this hearing, if they would make the same generous offer, a think the represent it. you said that the primary purpose of the cio is long-term interest rate currency exposure. there's also credit portfolio to protect a larger institution. why were those functions in the same place? is that something you are thinking about at all? i know the you head all across your line of business, but i wondered why this is in the same place. >> in general it was worked out by a foreign currency exposure.

it was irrational place to put it. >> as someone who supports the exemption, which i also support, it raises in my mind, because the purposes are different, it may have a useful value. the second question, before moving on to something else entirely, you also made the auburn -- observation in your testimony that the transaction could have been handled by lessening the degree of exposure. why would that not have been nothing to do? >> we were told that it was a cost-efficient way to reduce

exposure. that is what we're thinking -- we were thinking at the time. that over time, you would not spend as much money getting rid of this thing. >> with your indulgence, this is unrelated, but i think you are well aware of my concern about the fiscal conditions for this country. i wonder if you could take the last several minutes of this time to talk about how you see our relative position these of the -- this of thisvis a v -- vis a vis europe and other things. >> you are asking one citizens

opinion? >> yes. >> i would be happy to share it. europe has serious issues. their political and monetary union is very complex. the united states has a serious issue. the one thing i keep in mind is that it may not wait until december 31. personally, i would not be of the mind that it is ok to wait until after the election. i think it is better to do something now so that we do not create additional uncertainty. we have to get our fiscal act in order. there is a road map that i like

where if we had done something remotely like simpson bowles, you would have increased confidence in america. you would have had a more efficient tax system conducive to economic growth. i would urge everyone to support giving something like that done. i know that it is not as important to getting -- as getting something like this. i know that it caused a downturn last year. >> do you know of any bank that has been well-capitalized, root -- well regulated, that has failed? >> i do not. >> we closed about 500 banks in

the last three to four years. just about every one of those failed because they were inadequately capitalized. bad loans, so speak. do you agree that there is no substitute for capital in running a financial institution? >> there is no substitute for capital. >> thank you, mr. dimon. today's hearing is a good reminder that we cannot let down our guard and must remain rigid in order to have a strong and stable financial system. we also have a brief update. the ranking member and i are continuing to discuss a way forward on housing finance

legislation that we have worked together on in the past to keep amendments for those in the bill. i hope that my colleagues will agree to continue. this hearing is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> next week, jpmorgan chase president and ceo, jimmy diamon, testifies before the house trading commission. also next week, look for the last days mf global. we have the reporter wrote about

a six month investigation into the firm. hooker we have more on the collapse of the financial sector. "washington journal," taking your calls, live. five >> one of the quotes from the white house staff was inspiring. was to realize the magnitude difference even make in public life, it pales in comparison. >> someone from the white house told us that those of us who believe they are crazy enough to believe they can change the world actually do. >> choose carefully, execute relentlessly. too often we find ourselves not focusing on the one thing that should be a top priority.

>> every year the u.s. senate youth program brings students to washington. this year, the senior director made an impact. >> i started with the mindset of what it is like to be them. now that i am in this role, what could i share with them that i wish i had known along the way, or that they will remember, which as you have mentioned is an intense, rapid-fire experience. if you leave some encouraging messages, when you know it is easy to be cynical, it is a good thing to encourage young people to pursue public service. >> more, tonight at 8:00 eastern. >> john cornyn told eric holder that he should resign over his

operation of operation -- over his oversight of operation fast and furious. the attorney general said that he wanted to sit down with congressional investigators and find a way to avoid a contempt citation. the senate intelligence committee chairman said that she deplores -- she supports his decision to appoint attorneys through special counsel, as revealed in a book and article from a writer at "the new york times." >> of want to follow up on fisa -- i want to follow up on fisa. thank you for requesting the authorization. but there any changes needed regarding intelligence gathering capabilities or the rights of u.s. citizens? is it not true that the current

faa authorizes the inspector general to conduct oversight? >> it is true that there is the component that the inspector general has to do. it is an annual report with an annual basis from the inspector general. i think that as we look that the potential reauthorization, we want to work with this committee and members of congress to look at concerns that might be raised in terms of the rules that we need and liberties and protections that need to be a vance. our hope would be that this would begin as soon as possible and conclude before the expiration. >> on fast and furious, i have had a chance to review the details of the wiretap. i disagree with your claim that

they do not have details. the acting director described that same affidavit from march of last year, saying that he was alarmed and that it contradicted public denials to congress, sending an e-mail warning others to back off a letter in light of the information in the affidavit. he did not withdraw the letter to me until december 2011. july 2011, we ask for the e- mail from the acting director. that we needed to see it to corroborate the testimony. "on what legal ground are you withholding that e-mail? the president cannot claim executive privilege."

is that correct? >> let me say that we have reached out to the chairman and members of the leadership on the house side, trying to work their way to these issues. i think that we have had sporadic contact and we are prepared to make compromises with regards to these documents being made available. there is a basis for withholding these documents today dealing with the liberty of -- >> not on executive privilege. >> the tradition has always been from the members of the justice department. in spite of that, i want to make it clear that i am offering to sit down with the speaker, the chairman, with you, whoever, in an attempt to avoid a

constitutional crisis to come up with creative ways to make this material available. as a willing partner, i have extended my hand and am willing to hear back. >> when the acting director went over the affidavit, he was testifying that he was alarmed at the sheer number of guns being purchased without knowledge. when did you decide to read them for yourself? why did you decide to do that? >> i read it in the summary memos after my last hearing. the one before that. it had become a topic of conversation and questioning. frankly, i had not known what was -- contained in them. i have my staff pull them together and had an extended

affidavit. >> how is it that you can look at the details and see nothing wrong when others saw that it had major problems? >> these matters are under seal, looking at the same materials and reaching the same. >> on the basis of hindsight, trying to put myself in a place of people looking at that material, the time it was given to them. i take the congress and if you of that material was being tracked. >> debate over wiretap applications has become a matter

of he said, she said, since they are sealed. i wrote to you and ask you to seek permission from the court for the affidavit to be released from congress. will you seek the permission to release it so that people can read and decide for themselves what they mean? if there are any problems with something sensitive, with the judge not simply make an independent decision? if you>> that would be an extraordinary act. it is not happen very frequently. there have been a number of cases where -- i will put that on the table as something to consider. if we share that information, we do not want to live and impact on ongoing

investigations. i'm willing to consider that as a possibility to try to avoid what i think is an impending constitutional crisis. >> have the wiretap applications been produced? if so, why shouldn't congress get to see what the and that it gun smugglers get to see? >> i do not know where we are in terms of what has been provided to the defense. >> it has been reported the national security division has been recused for a least one investigation stemming from the national security leaks. is this correct?

how is there not a conflict of interest on the justice department? >> well, i think that this committee and the american people can have great faith in the two people that i have asked to leave the investigation. rod rosenstein and ronald machen are both familiar with these kinds of cases. ronald machen is doing a lot of work right now with the d.c. government. president obama asked rod rosenstein to stay on as attorney general for a maryland. they have shown an ability to be thorough and to have the guts to ask the tough questions, and to follow the leads, wherever they are. i have great faith in their abilities. >> in the anthrax leak, you

relied upon prosecutors to dismiss the cases. what did you assign political appointees as opposed to career prosecutors in this investigation? >> the people who left to leave these investigations have to be sufficiently high in the department to be able to command high people and the launch of people are united states attorney's. this has been done on many occasions when pat fitzgerald has been asked to do this. we have moved away from the independent counsel model which proved to be not particularly successful. we'll see the use of u.s. attorneys. >> thank you. >> we discussed the plans to

close four of the seven field offices. the chiefs in six of the offices wrote to you and asked that this decision be reversed. "it will be difficult to continue in the states and territories served by the field offices." i wrote you to reconsider this decision. they reported $97 million in fines in the last five years. those in these offices will result in no presence in the southern half of the country. $6 million of the $8 million will result from the expected

reduction of half of the attorneys and staff now working in these offices, which would seem to show a lessening in our priority. what is your response in six of the seven offices? will you agree to reexamine its decision? >> the antitrust division has been a priority for this justice department. we can see that that's true. we're looking for ways in which we can be efficient and effective and that is why we decided to implement this plan. we have seen that these cases become more complex and complicated.

they can best be handled by the reduced number of offices with larger teams. the people who are members of these offices are going to be offered jobs within the justice department. people can move to other places. so, i think there is a budgetary reason for this and there will be no loss in our desire to be as aggressive as we have been with regard to the enforcement of the antitrust laws. >> almost all the money saved would be any reduction in staff believes that those people will be given opportunities to relocate. it doesn't look as though we're looking at any appreciable reduction in cost and fewer offices. i am asking you to reconsider this decision so we can be clear about the efficacy of doing this.

>> there are rents that we don't have to pay. there are ways we can use people worry currently have vacancies, so it has eight budgetary impact that is positive for us. >> we have been working on the -- to allow nursing home residents access to drugs to manage crippling pain. there are still a few outstanding differences that we continue to work through. i am very much aware and appreciate the gravity of the problem we are seeking to address and appreciate your personal attention over the past year.

the longer this remains unresolved, the more nursing home residents will continue to suffer. >> i thought we worked pretty effectively in dealing with some of the concerns that you raised earlier. we want to get a handle around any issue that remain. i know that you'll be leaving the senate and out hope we'll have an opportunity to conclude an be in a good place before that happens. >> thank you. well, let me ask you about your future plans. do commend you for your

outstanding service. can you tell us, we want to continue to serve as attorney general in a second term? >> i think you have to ask president obama the question. i have enjoyed my time as attorney-general. it's been a tough job. some raise concerns about whether i was tough enough for this job. i have done a job that is consistent with my values. i stuck by my guns. i have lost some. i am proud of the work i've done. i'm proud of the people in the department of justice. this is been the highlight of my career, to work with you all and to serve this president. >> thank you.

minibus were troubled when the conviction was overturned of a former goldman sachs programmer who stole code from the company. is this truly a major setback for prosecutors ability to go after the theft of trade secrets under the economic espionage act? does it give a free pass to anybody who was to steal computer codes? do believe this requires a statutory fixed? >> there is no question that was a setback.

we need to assess that case and get back to this committee to see if there is a fix that we might put in place to deal with that issue. i have to respect the decision of the court. there is a potential free negative impact. i think you're right to raise that concern -- there is a potential for a negative impact. >> thank you, mr. attorney general. >> thank you. senator kyl. i'm going by the list given to me by rank-and-file order. senator kyl will be next and senator feinstein. >> thank you.

i like to ask you questions in four areas. what exactly are you investigating? the potential to get evidence from reporters? why two prosecutors? let me go back. we have all read about four specific areas of leaks. i wonder if there are others. the killing of bin laden. the drone assassinations and the computer worm activity. you said you would commit to follow the evidence where it leads. i presume that means leaving no stone unturned.

this that include journalist to reveal their sources? do you think your own guidelines in dealing with members of the media are adequate? where the circumstances that warrant testimony from the media -- what are the circumstances that warrant testimony from the media? could you describe the circumstances that would cause recusals? the refusal of the department of justice's entire national security division. there is a reference to the cfr's. the leaks came from participates in situation room meetings. that boils down to a small and specific group of people, all from work directly with the

president. we have seen photographs of the day that bin laden was killed. we recognize people in that photograph. the evidence points to one are more of those people. would it be a conflict of interest -- i presume the president and jay carney and david axelrod are not part of your investigative team. how could they say this case does not present a conflict of interest? how could they know that? why two prosecutors? do the two of them have to agree on everything?

>> you packed a lot into that question? the refusal is not of the entire division. it is that portion of the division that might have had exposure to the subject matter of the investigation. this is something that happens as a matter of routine. it doesn't mean they have done something wrong. they might have had -- these career people not in that category can be a part of the ongoing investigation. with regard to the question of the press, we have in place regulations that have to be followed within the departments

and i think those are adequate. we have to exhaust all the alternative means before we seek testimony from members of the press and that has to be signed off and i think that is a corporate. we have tried more leaky cases during the course of this administration than any other administration. i was getting hammered by the left only two weeks ago, and now i'm getting hammered by the right. it makes for an interesting dynamic. the mechanisms we have in place are good ones. we have shown no hesitancy to employ them. >> can you expand and be more precise on what you are investigating? >> i do not want to go into that which we are investigating. some of the programs are

extremely sensitive. to its knowledge an investigation of a particular item would necessarily -- could necessarily be seen as an existence of that program or that effort. i did nothing to it is an appropriate thing to do. i pledge to make sure i keep the intelligence committee as well as the judiciary committee abreast of what it is that we're doing. >> about the conflict of interest matter -- participates in the situation room meetings. pretty small group of people. does not present a conflict of interest? >> i read that article by mr. sanger. he talked about information

coming from sources other than the white house. let me be clear. our investigation will follow leads wherever they take us. mr. machen, mr. rosenstein have the ability and the moxie -- >> does not present an inherent conflict of interest? the national security adviser, for example. doesn't that present a conflict of interest because they might have had a conflict of interest? >> we want to look at the evidence as it develops. look at the alternative. that would necessarily mean having to find somebody and have it to staff them up and to find office space.

the need is to operate with some degree of speed and as what i picked these two really good u.s. attorneys to handle this issue. >> my time is up. i presume jay carney and david axelrod are not involved. what are the rules with respect to a division of responsibility or the looking at the same thing? could you tell us whether they have a valid basis for reaching the conclusion that the case does not present a conflict of interest? what are the rules of engagement, and could you specifically tell us either -- whether david axelrod, the president or j. carty have a valid basis for reaching the conclusion that the case is not present a conflict of interest?

>> i would say on the basis of what i know at this early stage of the investigation, there is not a basis for conflict determination, but something we're monitoring on an ongoing basis. we have set up in place as the justice department and fbi and mechanism so we can be advised on the possibility of conflict, and if at some point the people who have been given the responsibility indicate to us that we are at a conflict situation, we will act appropriately. >> anything on the last point? >> about to prosecutors rather than one? -- two prosecutors rather than one? >> i am not going into the last point because i would be talking about things that i do not think should of ever been weak and have been confirmed in this study, but i will be very honest.

i will be more fulsome in my intelligence committee, and the judiciary committee in a different form. >> i do appreciate you giving me a heads up before you pointed this out, because i think they are tough, honest prosecutors. one for the bush administration. both are the epitome of professional prosecutors, and i think it is a good choice.

canada -- senator feinstein. >> thank you very much. welcome, general. good to see you. i am aware that around noon since the senate resolution will be introduced to set up a special counsel, and i want to say at this time i would oppose the legislation. the attorney-general called me on friday and indicated he was assigning to the united states attorney's to investigate these leaks, so i looked up the credentials of these to the united states attorneys, and i would like for the purposes of the record just review some of the credentials. one of them is the united states attorney for maryland. he is a republican, but he

served in republican and democratic administrations. he served in that ashcroft justice department as principled that pd assistant for the tax division from 2001-2005 period from 95-97 he worked as an associate independent counsel. he supervised the investigation that found no basis for criminal prosecution who had obtained fbi background reports. in 2005 he was nominated by president bush and unanimously voted in. the president said rod rosenstein is widely praised by jury -- by judges and lawyers alike for his fairness. roger maystream has served as united states attorney for the districts of february 2010 and was favorably reported by this committee by voice vote and

confirmed by unanimous consent. he served as an assistant united states attorney from 1997-2001. he was a partner before becoming a u.s. attorney. he is a graduate of stanford university and harvard law school. the reason why i oppose special counsel is special counsel takes a long time. if you look at the special counsel in the scooter libby case, it took four years to complete.

we have heard they are already conducting interviews to find out who leaked the bomb plot. now the united states attorneys have announced to leave the leaked cases. i really think this is the appropriate way to go. i am going to support it. i am hopeful members of the intelligence committee in this committee will support these leaks being investigated in this way. i say to have a fight over how we do this now will set back any investigation. these are too scrupulous men. they are both independent, and i have no reason to believe why they cannot work with the fbi and assemble a very strong prosecution team where warranted. i am very pleased to support

that. on the subject as to why fbi agents were recused, and you pointed this out, mr. attorney general, this was an abundance of caution, so that no one who had anything to do with the investigation, a surgically of the bomb as it left yemen, will be involved in the investigation, and is that a correct analysis? >> i do not believe anyone from the fbi has been reduced. i will also say in an abundance of caution, both the director and i have already been interviewed in connection with the knowledge that we have a of those matters. at least of that matter. >> all right. i mentioned to the ranking member as he left, on the subjects of i.g. reports, i very much agree with what he

said, and the committee has extensive language in the report and the bill that we are now about to put together on this subject. there are an abundance of requirements on your department to produce various reports. it is twice yearly. let me just read a couple of things. section 700 to require semi- annual assessments by the attorney general and dni provided to congress and the intelligence report. in addition, the attorney general and certain elements of the intelligence community are authorized to review the implementation of section 102

and must provide copies of any such review to the attorney general, dni and congressional committees of the jurisdiction. it goes on with more. i can tell you this, in the last meeting we had a binder this fall of the reviews. we have also just recently had the attorney inspector general before us, and i can tell you i found them very forward- leaning, and really felt they are capable of exercising a strong investigations and making conclusions, regardless of where the conclusions may fall. i think that is good. let me talk to you about something -- senator grassley and i had something called the senate caucus for international drug control. it has been very interesting,

because in the course of so doing, we have had the opportunity to look at mexico, caribbean islands, guatemala, the caribbean islands. a number of different places with respect to drugs. the senate passed a bill that senator grassley and i did called the targeting transnational drug-trafficking act of 2011, and the bill lowers the threshold from current law, which says drug traffickers must know illegal drugs will be traffic into the united states, so instead require reasonable cause to believe illegal drugs will be traffic into the united states. under current law,, our ability to prosecute source nations traffickers from south america is limited since there is often no direct evidence of knowledge

that drugs were intended for the united states. our legislation changes this, and i hope the house passes it and sends it to the president for his signature. could you please tell us how this bill could enhance your ability to extradite drug king pins to the united states? >> i am not totally familiar with the bill, but i like the portion you have just described, because you point out a problem we have in getting out the drug kingpins. there's a certain knowledge we have to be able to prove to get them back into the country. fifth we have the greatest capacity to incapacitate these people. i think your emphasis on nations other than mexico is really important, and something we have not necessarily done as good a job as we could have. i have been in the caribbean and talk to my counterparts. the mexican government becomes more successful.

the cartels are looking for other ways to get drugs into the united states, and i think the focus on the other places and the mechanism can both be extremely useful. i look forward to working with you in regards to that bill. >> it has passed the senate. we need to get it passed the house. >> i agree. senator gramm is next. >> think you for coming. -- thank you. is the national security adviser part of the white house in your view? >> every time i see him, that is where he is. >> as you read the review of the book about the program and the kill list and the other things we're talking about? he says, and throughout this he has enjoyed great access to senior white house officials, most notably the national

security adviser, tom donovan. tondo mullin is the hero of the book. and -- tom donovan is the hero of the book. according to this review, and from my reading of excerpts of the book, someone at the highest level of government has been talking about programs that i think are incredibly sensitive. on a scale of 1-10, how serious do you think these leaks are? >> i think they are extremely serious. i am not sure what 10 would be, but i would put them up there. >> i cannot imagine -- if there is something worse, i would hate to see it. my point is i think our concern on this side of the i/o is there are clearly people around

-- this side of the aisle is there are clearly stories of people leaking highly-classified information. you have one program called fast and furious that has been an embarrassment to the of fenestration and has been like pulling teeth to get information about that. when you have programs on the national security front that seemed to show the president as a strong leader, you can read about it in the paper. my concern, i think, is a lot of us believe if there was ever a need for outside special counsel, it is now. >> the people appointed to look into the matter is our first- rate prosecutors who will do a great job.

as we look at the history of what u.s. attorneys who have been appointed in these kinds of cases -- >> do you believe it was a good thing to have a special counsel in the valerie plame case? >> sure. >> the chief of staff ended up being prosecuted. the you think it was a good thing to have a special counsel in the jack abroff case? >> we can get -- >> do you think it was a good idea in this case? >> the plame case involved a person that was the united states attorney, same thing i have done here. that was the person who got the designation. these people are appointed as

u.s. attorneys, because it is possible some of these acts occurred. if we have proof that things happened outside the district, i can appoint them under section 515 as special counsels. >> you are fighting the very concept that senator obama wrote a letter to the bush administration. vice president biden was on tv morning, noon, and night urging the bush and ministration to appoint a special counsel in the valerie plame case. senator obama wrote a letter to the white house urging the attorney general gonzales to appoint a special counsel in the jack abramoff case. as a result, high-ranking republicans ended up being compromised or going to jail. my point is the political intrigues are around this is of no greater than it is here.

we are talking about people surrounding the president and the national-security apparatus at the highest level, and you are resisting doing what senator obama and senator biden suggested was in the public interest. why is that? >> i look at controversies in make a decision based on what i think is necessary for a successful investigation. >> you know i'd like you. we have a good relationship, but you are being subpoenaed. you may be held in contempt by the house. 39 democrats have asked for more information. are you suggesting giving your problems in the house and the political intrigues around the case and giving past behavior of senator obama in senator obama, you would be doing the

country a great service to appoint someone to we could all bite into. i am sure these people are fine folks, but i am very disturbed about the inability to get information regarding programs that are embarrassing and the tendency of is administration to tell the whole world about things that are good. i just think you would be doing the country a great service if you followed the advice and counsel of senator biden and obama. >> i think what is most constructive is to follow the vice of the past that has worked. >> those investigations work? >> certainly the -- >> somebody knew other these two people. you are missing the fact of this is a very big deal.

all i am asking for is for you to find a lawyer in this country that all of us can say that is the right person to do this job, rather than you picking people and telling us about how great these people are. there are lots of lawyers in this country that will follow the evidence wherever it leads. i am asking you for your legacy of the good of the country, reappoint someone that all of us have confidence in. i am asking no more of you and senator biden asked and investigations that are no worse than this. >> i do know these people. they are good lawyers, tough prosecutors.

>> the answer is you are not going to change your mind? take know what you are missing here in terms of the special counsel was a sitting u.s. attorney where nothing was done differently than what i have done with regards to these people. >> what you are missing is the biggest double standard in recent times that the very people that are in charge of the white house, but i believe have compromised national security unlike any time in recent memory, when they were in this body with investigations no worse were advocating to the bush administration appoint someone to come appoint a special prosecutor that we could all have confidence in and suggest the bush administration was trying to conceal by not doing what they were urging. the shoe is on the other foot, and you are not willing to embrace the idea you would be better off for the country if you would pick someone we could all bite into from the get go, rather than picking to people

you think are great that i did not know anything about. at the end of the day i cannot believe this is even a debate give it the national security implications of these leaks. >> i let him go way over his time so i could kick his speech in, but i would note with the time of that request for special counsel, that was when the attorney consol was testified that he really considered himself a part of the president's staff, and not an independent attorney general. and to go if i may respond, mr. chairman, there is no doubt in my mind that if the shoe were

on the other foot, you and everyone else would be screaming to appoint a special prosecutor that all of us could buy into. given the record of the way you have -- >> [unintelligible] >> this cries out for corrective action. >> i have seen the talking points that the republican candidates have, if you have probably use them better than anybody else. >> if i could just correct the record. >> specially appointed with powers and protections outside the systems we're all concerned about. you have a chance to leave the country in a new direction, and the fact that you are not going to do this disturbs all of us on

on our side of the ideal. >> let's see what the u.s. attorney will do. if they are not going forward with adequate prosecution. let's see how they do. if they are not doing their job, i will be among the first to say so. >> let me say, we agree on so many things. i do take exception about this administration compromising national security more than any administration. i think that was over the line. i would like to remind those that are following us that we have listened to speech after speech from the minority leader and other members of this panel

about how impossible it is to prosecute would-be terrorists in article 3 courts and should be referred to military tribunals. i believe the track record at this moment under this administration is that over 400 would-be terrorists have been stopped and article 3 courts, and six in military tribunals. that our country is sick today because of the administration when appropriate to send cases to article 3 courts and to suggest that this particular of ministration somehow compromise national security is not borne by the evidence. i would ask the attorney general to respond. >> in terms of the article 3 system, it has proven to be effective in this administration and prior administration. we have proven the ability to get intelligence out of people. we have had successful prosecution.

we have been able to conduct these cases safely without putting anyone at minsk -- at risk in the immediate area. we need to have faith in what we called the greatest judicial system in the world. those who lost faith and the ability went head-long into the facts. >> if i could return to this specific instance here, i recall very well when patrick fitzgerald was chosen, a sitting u.s. attorneys from the northern district of illinois, who conducted a lengthy investigation of the valerie plame situation. it started with the premise that someone had outed valerie plame -- [unintelligible] that has in fact been vacant for 10 years. our state has tried to negotiate an agreement with the bureau prisons, which faces its own overcrowding challenges to come up with appropriate purchase

price, and they agreed on one that has been approved through the state government. one of the contentious issues related to whether or not guantanamo detainees would be transferred to the thompson prison. you sent a letter that suggested -- did not suggest, as stated constent state law, we will not transfer detainees or otherwise house them at thompson. that letter was sent several years ago. i want to ask this question as to whether or not there is a vacation and that statement. i would like to ask you, and i am sorry to say this, under oath as you are as testimony before this committee, i would like to ask you as attorney general, but will you pledge under no circumstances will be obama administration seek to transfer detainees from guantanamo to thompson regardless of what the law permits?

take of that is an accurate statement of our position. we want to acquire the thompson facility. it would be a welcome addition to the bureau of prisons and increase the capacity we need for those kinds of prisoners, and we will not move people from guantanamo, regardless of the state of the law for

thompson. that is my pledge. >> for the record, this matter has been debated for over a year. at has been approved on the

senate side. it has been held up by one republican congressman. i hope your testimony under oath will satisfy whatever questions remind -- remain in his mind. but me ask you about another issue. i would ask ari u.s. ambassador, what is the first thing i should raise on behalf of the united states when meeting with the president of this country. he would say without fail, elections. make it clear that it there want to be a clear democracy they have to have clear and fair elections, given the opposition and opportunity, making people that are eligible to vote able to vote.

i have held hearings in two states as part of the subcommittee in florida and ohio. over recent the laws that limit the opportunities of the residents of those states to vote in the november election. i have called the election officials and ask them point- blank, what was the evidence of voter fraud that led state legislatures to put of the requirements of the law to restrict opportunity to vote? without fail, they said there was no evidence that led to the state decision. this group, alec american legislative campaign counsel has been campaigning to change state laws. this comes into a voting rights question, which you are well aware of. i might add that some of the evidence that is coming out now makes it clear, for example, in the state of florida, they launched a controversial project that made this franchise voters.

they are purging them of non- citizens. only eligible american citizens should be able to vote, but florida's process is the leading people from the registration list has been so careless, it has been wracked with errors. of the two house -- 2780 names on the list, many were majorities. the overwhelming were registered independents, democrats, and republicans. more to the point, all the people of the state's list of non-citizens are actually american citizens. i raise this point because as we preach to the world the requirements of democracy when it comes to elections, the question is whether we're practicing them in the states of florida, ohio, and so many other places.

in light of the department of justice conclusion, what steps is your department taking were prepared to take a florida's governor and the secretary of state continue to ignore the department of justice ordered to stop urging the registration list? >> we sent two letters to the state of florida. i have given authorization to the civil-rights division to go into court and sue the state of florida to stop these purchase, which are inconsistent with the national registration boater at. clearly in violation, which requires there be a quiet period, 90 days between any action you might want to take in the holding of an election or primary. my expectation is that will be filed within the next 24-48 hours. we have done all we can and try to reason with people in florida through the provision of these letters.

tore not prepared to go court. >> i hope that is not necessary, but what is at stake is critical. if we are going to preach to the world the requirements of democracy in our practice them at home, we will flunk our own human rights scorecard in the part of state. i think we have to stand up for those that have political power and tried to restrict the rights of the american citizen -- american citizens the right to vote. >> would you agree with me that given the gravity of the national security leaks that it is important the investigation be non-partisan and independent? take your shirt, and we can do that with the people i have appointed. -- >> sure, and we can do that with the people i have appointed. >> the report to you, correct? >> they report to me as they have in the past. >> the acting attorney general delegated all investigative

authority of the attorney general through the special counsel. it operated independent of the control of any officer at the department of justice, correct? >> he was a good deputy attorney general. the regulations in place make very clear that someone appointed pursuant to those regulations is supposed to act within the chain and followed justice department rules. it is in contrast to the independent counsel act that was led to expire towards the end of the clinton of frustration. to go you hired him first in 1997, correct? -- >> you hired him as an assistant deputy counsel in 1997, correct? >> yes, i am not sure of the date, but i did hire him. i am confident he has the ability, capacity to investigate this case and an on-partisan independent, the road, and aggressive way.

>> the question that raises by your answer is whether you have the independence and ability to conduct the investigation, if in fact all of this comes back through you, and given your track record. i just want to go over -- >> my track record is consistent -- my record i think it will stand on. i have shown the capacity to investigate people within the administration. we have brought -- let's focus on those. >> let's not filibuster the time. but the talk about your record. you misled congress in february 2011 and claimed there had never been a gun walking program and had to retract that in november 2011. you missed lead rep issa in may, 2011. then you had to a bit to senator grassley you learned about the tactics in january of 2011.

you claimed in a press conference of september 2011 you had no knowledge of the last entry is done walking program, while it was clear your inner circle employees received briefings and memos, including we need for work, grinler and others. you claim that fast and furious wiretap did not detail walking tactics. i have read them. they do please read tea -- raise plenty of red flags about the tactic. you have defied oversight responsibilities to the house of representatives in the senate. you resisted producing documents.

and you failed to respond to my letter of august 2011 were i asked to about gun walking tactics that occurred in my state. after ryan terry lost his life in service to his country at the hands of a drug cartel member who shot him using a weapon that was allowed to walk under this program, there has been zero accountability to the department of justice. you will not appoint a special prosecutor in the face of a potential conflict of interest. you will not tell the truth about what you know and when you knew it fast and furious. he will not cooperate with a legitimate investigation. you will not answer my questions about gun walking in texas. you will not take responsibility for the failures of your inner circle and will not hold anyone accountable. i am afraid we come to an impasse, the leaking of classified information

represents a major threat to national security, and your office faces a clear conflict of interest, yet you will not appoint a special counsel. he will not take the threat seriously. meanwhile, you still resist coming clean about what you knew and when you do it with regard to operation fast and furious. you will not cooperate with the legitimate investigation, and you will not hold anyone accountable. your department blocks fixed from implementing the thames to combat voter fraud, and you have violated the public trust in my view, and by failing to refused the duties of your office. it is more with sorrow than anger that i would say you leave me no alternative but to join those who call upon you to resign your office. americans deserve -- deserve an attorney general that will be honest with them.

you have proven time and time again, sadly, you are unwilling to do so. the american people deserve better and deserve an attorney general that is accountable and independent and puts justice before politics. it is my severe hope president obama will replace you with someone that is up to the challenge. >> you certainly have the right to respond to that. the attorney general from texas has accused you of perjury, a criminal offense. i remember his strong support for one of your predecessors, attorney general gonzales. i have a different view of that. i felt you are a more appropriate person to be attorney general, so feel free to respond.

>> with all due respect, there is so much factually wrong with the premises you started your statement with. it is almost breathtaking in the inaccuracy, but i will simply leave it at that. we want to talk about fast and furious. this is now the ninth time i have answered questions before a congressional committee about fast and furious. i am the attorney general but put an end to the misguided tactics. the attorney general was briefed on these tactics and did nothing to stop them. 300 guns at least walked in that instance. i am the attorney general called on an inspector general to look into the matter and investigate. i am also the one that made personnel changes that was involved in overseeing the changes of prophecies and procedures to make sure that

this does not happen ever again, so i do not have any intention of resigning. i heard the white house press officer said yesterday that the president has absolute confidence in me. i do not have any reason to believe that is not the case. in terms of what it is that we have turned over to congress in this regard, let's put something on the record. we have collected data from -- this is part of fast and furious. we collected data from 240 custodians. we process millions of electronic records. turned over 7600 pages over the course of 46 separate productions. we have made available people from the department at the highest levels to be interviewed, and i have also indicated earlier in my testimony to the extent that all of that is not enough to satisfy the concerns that have

been raised in the house committee. i am willing to sit down and talk about the provision of more materials. i have sent letters in that regard. i have not had responses, which leads me to believe that the desire here is not for accommodation, but for a political point making. that is the kind of thing that that you and your side i guess have the ability to do. it is the thing that turns people off about washington. >> mr. attorney general, the problem we have is you will not allow congress to do its job when it comes to our site and you fort a legitimate investigation like fast and furious. you send a letter in february 2011 to this committee in response to senator grassley's increasing nothing like that existed. it took until november 2011 to apologize for misleading congress. congress.