, which is a newspaper market that's a little bit better now, you've got what is the national inquir inquirer. which is not. that's a sort of lively paper, but no one takes it as the paper of record, particularly. but i mean, it's not, you know, it wouldn't kb regarded as where you would go first. and then you've got your papers like, you know, usa today, wall street journal, new york times, "washington post," los angeles times. and in those papers, of them has a pretty defined personal in terms of the basic political outlook and so on. usa today, maybe a little less. but you still would expect the stories in there to be basically accurately written, even if they were chosen for a particular purpose. that is the distinction. i really find it hard to see how making that distinction is somehow a breach. and this is what is important. if you don't hold out your news organ to be a news organ. dp you say, look, we're not interested in what the facts are. once we take a view on something, you're not getting the facts. you're getting our view. fair enough that's not what happened. and, you know, wha

do you know if occ inquired about trades as the regulators, these five regulators, did they inquire about the trades prior to the earnings call? >> i don't know. >> at what point can you tell us did occ take steps to challenge the trades? >> i think the second that they understood the significance of the trades they started to challenge it every day. and they continued to. >> five regulators in london enough? >> i don't know the answer, but i would say in a modern day in age, they get all the reports from london. they can do it by tell presence. so physical location isn't important. i should point out the 19,000 employees in columbus serve global clients. they serve 30 million americans. they serve a lot of middle market companies. we run a lot of call centers there. they process our credit cards, which we ship around the country. so those employees are not just doing ohio-based business. >> a couple other points. since 2007 your chief investment office has grown. occ says that your activities were not considered to be high risk, but they go on to say a similar situation large hedges that

did you know if occ inquired about trades or the five regulators in new york, did they inquire about the trades prior? >> i don't know. >> at what point did occ take steps to challenge the trades? >> i think the second that they understood the significance of the trade, they started to challenge it every day. and they continue to. >> 5 regulators in london enough? >> i don't no. in this modern day and age, they get all the reports from london and they can do it by an telepresence. 19,000 employers in columbus served 30 million americans and deserve a lot of middle-market companies, they innovate, we run a lot of call centers there, our credit cards that we ship around the country, so those people are not just doing ohio- based business. >> since 2007 your chief investment officer has grown from 76 to $307 billion. occ says your activities were not considered to be high risk but that a similar level of thatity, large hedge s are complex are not present in other banks. my question is should occ have been more focused on trade with synthetic derivatives that they admit now in hindsight

inquired about trades or the five regulators in new york, did they inquire about the trades prior? >> i don't know. >> at what point did occ take steps to challenge the trades? >> i think the second that they understood the significance of the trade, they started to challenge it every day. and they continue to. >> 5 regulators in london enough? >> i don't no. in this modern day and age, they get all the reports from london and they can do it by an telepresence. 19,000 employers in columbus served 30 million americans and deserve a lot of middle-market companies, they innovate, we run a lot of call centers there, our credit cards that we ship around the country, so those people are not just doing ohio-based business. >> since 2007 your chief investment officer has grown from 76 to $307 billion. occ says your activities were not considered to be high risk but that a similar level of activity, large hedges that are complex are not present in other banks. my question is should occ have been more focused on trade with synthetic derivatives that they admit now in hindsight or larger and more complex than any other banking system? >> we should have. >> if your bank did not have 2.3 trillion in assets, would your cio need to beat that $370 billion? >> a lot of the increase was because of wamu. what we are doing now is we have 1000 small-business bankers in the states where wamu was. investing in assets and conservatively other than this one thing is what we do. >> the senator made a statement a moment ago, offered the question or observation that it raises the possibility that jpmorgan chase maybe too complex to manage? to too large to regulate? -- is it too large to regulate? it has quadrupled in size to $2.30 trillion today. there are six american banks that are 800 billion and above. over last five years you've grown by 400 billion. this case demonstrates that in a practical matter, neither you nor the occ could monitor what was happening at the chief investment officer that would be the eighth largest bank in the united states if it were standing alone. 559 subsidiaries in 37 countries, executives and regulators, from listening to your conversation and sing the occ, it appears regulators cannot understand why what is happening in all these offices. it demonstrates that too big to fail banks are too big to manage. and manage >> senator. >> thank you, mr. chairman. mr. diamond, let me start by saying thank you for being here today. -- mr. dimon. you have a acknowledged it was a dumb of and the loss is unfortunate. you have apologized for that. what i want to do is ask you about some things may be at a 25,000 level, if i could. starting out, how many regulators do you have on site in your organization from some federal entity? >> hundreds, i believe. multiple regulators. >> sense something like this pops up, are the channels clear anymore as to who you deal with and who is regulating what stand who you need to be paying attention to? >> we are always going to treat the regulators the way they deserve to be treated. whenever the system is, we have to deal with it. we have people assigned specifically to deal with regulators, the fdic, bocc, the fed. -- occ, fed. >> how much have your regulatory costs increased as a result of dodd-frank, the volcker rule, whatever it is? >> i have estimated roughly about $1 billion a year, across systems. maybe a thousand programs that we run. we have to accommodate the rules. rules come out of brussels and out of the u.k., etc. we will do all those things, meet all the requirements, but it will be costly. >> one of the things i have maintained in many hearings since we have examined dodd- frank before and after its passage is that there's just a point at which it is economically better business to do business elsewhere than the united states. do we run the risk with dodd- frank? literally, we have made life so complicated, so hard to navigate that you have enterprises who decide i will just go to singapore or wherever, to do business. >> we will be able to navigate all that. i do hear a lot of people saying it is easier to be overseas. some companies to move overseas recently. >> my concern is it does not stop there. what i saw about dodd-frank, it started with a laudable purpose, let's try to figure out what happened in 2007-2008 and how do we fix it. then all of a sudden farmers co-ops were showing up in my office and asking what are we doing? and i am thinking how did the farmers' co-op have anything to do with what happened in 2007 or 2008? i have not verified this because somebody told me this last night and maybe you are aware of it, but somebody who worked with the skanking committee mentioned last night ahead and event i was up -- this is a banking committee meant to last night that there has not been a single bank charter that had been 78 years since that had happened. do you have any information on that? >> i was unaware of that. >> it further occurs to me that at an enterprise as big and powerful as yours, that you have a lot of firepower and you're huge. we will find a way to navigate what has happened here. you are not located in my state and i doubt you are probably considering locating in my state, although it would be a great place for you to do business. >> i would like to be there one day. >> what i suspect is happening is that our medium to small banks are worn out --are now trying to navigate through this complex legislation. these are banks or maybe they employed a dozen or two dozen people and they are just going to give up. what is your impression of that? >> wii bank a lot of smaller banks and i think some of these things are harder on smaller banks then larger buyers, unfortunately. >> thank you, mr. chairman. >> thank you for being here. it gives us a better chance to understand how j.p. morgan in your words committed an egregious mistakes from a poorly constructed hedging strategy. i would like to focus on j.p. morgan's role in the days leading up to mf globla's bankruptcy. when they were obligated by law to segregate and protect. in its final days of operation, and shuffled hundreds of millions of dollars from account to account for. a shell game. mf global customers saw their funds wiped away overnight in this so-called shell game and the firm's ability to segregate these funds. though mf global commodity customers have received 72 cents on the dollar back. the trust that farmers have in the system has been broken because of the firm's violation of the law. we have new information on the giddse of ajme james en's testimony. we have to get to the bottom of this issue to make sure that farmers receive their funds returned. over 100 of my constituents have their accounts rated by mf global to cover the firm's institutional losses and if anyone was complicity in this, i want to know about this. on may 18, they announced j.p. morgan's return of $168 million i ncash, that your firm held at the time of mf global's liquidation. the funds belong to hundreds of farmers and ranchers. why did it take your firm seven months to return these funds? >> we were banked mf global. the second they had problems, we immediately went to the trustees and the courts and told them what we have and did not have. we were waiting for them to finish their work. there is no hiding anything. we cooperated every step of the way. >> there was money released initially when mf global started down this path by your firm, but there was $168 million that was held seven months. why? it was their dough. it should have went to them. >> i think we were waiting for the guidance of the court and the trustee. we were not deliberately withholding the money trek >> i know the investigation singled your company up here if it highlighted your ongoing negotiations and potential litigation mr. gidden may bring against j.p. morgan chase. it was clear j.p. morgan had some vatican concerns about the health of the firm, mf global. your firm was intensely focused on whether collateral proposed by mf global was paid with customer segregated funds. according to the investigation, at your firm took steps to protect itself and its exposure placing mf global on debit alert. mr. dimon, despite repeated attempts by senior risk management officials at your firms, i to determine whether collateral for the $175 million transfer was in compliance with the rules regarding a segregated fund account, mf global did not signed a letter that your firm demanded. without this confirmation, and your suspicions, j.p. morgan chase alternately transferred the funds and accepted the collateral. can you, were you aware of the effort by senior risk-management officer to seek compliance confirmation from mf global? >> no. >> so why did j.p. morgan chase relent on efforts to secure signatures of the letter and of the transfer -- without insurance? >> we are doing a follow-up letter which is not required. we're asking them to make sure they had done the right thing. >> what you are saying is that even though you had placed them on the alert, and you limited -- you increased collateral requirements, when they ask you to transfer the money there was no conversation about whether this money was segregated funds? you just transferred it? >> they transferred it to us, desperate >> it was within your institution. >> it was coming over draft from the prior day. >> so the question is that you guys were concerned about mf global. you guys knew what was going down because you put them on debit alert. they had requested money to be pulled out of that was in your facility to be sent to another facility. there was some question by senior management officials and your firm whether this was segregated money, money that farmers were hedging with and hedging was to protect a company in bad -- from bad outcomes. can you tell me if j.p. morgan had any obligation to protect the farmers? >> they gave confirmation and then went bankrupt. >> you have confirmation on this. is that general operating procedure? >> the operating procedure is you do not have to ask at all. it is their responsibility. we were using excessive precaution. >> even when a company is going belly up? >> yes. that is why we try to make sure. we also tried to help them. >> we appreciate that. my concern here is because there were a lot of farmers that hedged to protect themselves from bad outcomes. and if this money was transferred and it was segregated money, there is a real problem. that is all. it just looking out for my folks. >> i hope they get all their money back. i still believe they will. >> i want to make sure that the individuals that are held responsible are. i want to thank the chairman for his flexibility on the time. thank you for the hearing. >> senator moran. you responded to someone questioned earlier describing that things that were good about smaller institutions and that things that create problems and larger institution. hubris stands out. how do you manage a company the size of j.p. morgan and overcome that list of adjectives that you described are just a natural occurrence within a large organization? >> they can occur in small organizations, too. >> you are not talking about the senate, surely? >> definitely not. not now. [laughter] look, i think all companies want to have great employees, that always analyze things, challenging yourself, learning from your mistakes. you share reports. i think there are ways you can avoid the negatives of being a big company. hopefully, we foster the right kind of culture at j.p. morgan. we believe we are in business to serve clients. that is job number one and we do it every day in 2000 communities all around the world. we hope our people believe that and it is in their hearts to do the right thing every day. we ask them to treat people the way you treat your friends or parents. if you see a problem, raise your hand and call the right people. we constantly try to improve our products and services. we lodge legitimate complaints. we tried to acknowledge them and fix them. >> how you manager j.p. morgan really is the business of your board of directors, your shareholders. but it does have consequences to those of us who believe in a free market system, its merits, and i hope that that -- i have this sense and i hope it is the case that that is the responsibility that you understand in protecting the free enterprise bsystem, how j.p. morgan conducts themselves. what behavior day exhibit matters and our ability to be an advocate for free market system that creates jobs and economic opportunity and allows americans to pursue the american dream. anything i am missing? >> i could not agree more. >> our ranking member, senator shelby talks often about sufficient capital as the greatest deterrent to words too agree withl, and i that. what -- one of the other component involved in trying to make certain that taxpayers are not responsible for the demise of a company like yours, a financial institution is the living will. would you describe to me what process has j.p. morgan gone through to develop that living will, how transparent it is. what role the regulators play. what evidence if we saw the living will develop for j.p. morgan would give me or others satisfaction that your company can be dissolved with out a call upon taxpayer dollars? >> i agree with most of the people. we have to get rid of anything that looks too big to fail. it is part of the help of the system. we should not prompt a lot. we have to allow them to fail. -- we should not prop them up. we want to make sure they do not damage the american public. a big bank, you want to be in a position where a big bank to be allowed to fail. i would call it bankruptcy. i would call it bankruptcy for a big, though banks. i would have clawed back. i would fire the board and what about the equity and the unsecured -- they would cover the normal bankruptcy. this resolution of the arctic which starts to put the structure in place and the living will, to me, what it means is to give information to regulators that know how to do it. we operate aware of the world. the fdic has taken down a lot of large banks, including wamu. you may remember american savings bank. it is more complex, updated. they need to know what happens to this legal entity or that off. what will you do if this happens? we have filed recently in an analysis how they go about dismantling at j.p. morgan that does not cost the taxpayer. we are in favor of one other thing that is if the fdic put money in -- banks should be dismantled and the names should be buried in disgrace. old testament justice here. if they cost the fdic money, they should be charged back to the other big banks. today, we pay -- it is a government program paid for 100% by j.p. morgan. during this crisis, we will pay them $5 billion. we are paying the fdic. it puts it on the other big banks to make sure rules are in place so we do not jeopardize each other could >> if j.p. morgan became a big, dumb banks and was in financial difficulty, is your sense that it would be -- do not want to use the word dissolved. this circumstance would be concluded with j.p. morgan's demise and no cost to the taxpayer. >> yes. that is the objective. >> senator cole. thank you, mr. chairman. i understand j.p. morgan is lending more money to businesses and i appreciate that. however, your bank lending is not keeping pace with the deposits to are taking in. last year j.p. morgan reported it had $1.10 trillion in deposits. this of course is more deposits than any other bank in the united states. but the other big banks reported loan to deposit ratios that are 10 to% to 20% higher than your bank. it seems like lending to american businesses would be less risky than what was being done in the london office. is your loan to deposit ratio lower than your ppeer banks because you are 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 weekend. we are a global money-center bank. we have deposits from governments or around the world, from sovereign entities, from large corporations that can be taken out tomorrow. we have to keep liquidity. we have several hundred billion dollars right now invested in central banks in case the biggest companies call us up and say send me $5 billion. we are a bank for people who can pay us. and we need a huge liquidity fund. >> the records indicate that your record is on loan to deposit ratios, your other big banks, their reported loan to deposit ratios are 10% to 20% higher than yours. that would seem to not square with your statement that you're wanting to lend but you do not have the customer. >> our middle-market loans are up to all% on average. our small business loans are up 52% said. corporations have a lot of choices out there. our mortgage was $40 billion, which was a huge number of new mortgages. what i am saying is we are not like all other banks. we need to keep a lot of cash around to deal with the immediate cash demands. when you talk about some of the biggest companies in the world, they can move $10 billion in the day. >> i appreciate that. one final comment. the biggest banks with whom you are competing are generally described in the same way you describe yours. and their loan to deposit ratios are higher than yours. >> they are different for historical reasons. >> senate offices like ours often hear constituents who are trying to get a modification on their home loand to stave of foreclosures carrot they come to was because they are having trouble getting through to their lender. sadly is often common for constituents to say that the bank lost their paperwork. four years since the crisis began. , we are hearing about these mixups. as a constituent, who had along with j.p. morgan noted recently "i do not want to lose my house because they cannot keep their paperwork straight." why have banks been unable to sort out these paperwork problems? >> i would agree. they should not lose a whole because we failed in their paper work. i will follow up on that one right away. we hired 20,000 people to deal with default modifications. we offered modifications of 1.2 million loans. we offered alternatives to foreclosures. we are doing a better, faster today. we put in more systems to deal with it. i have to confess we were not good that when the problems started. we were overwhelmed. >> i am sure we all agreed that the cio o ffice carries the complicated transactions. your employees are the smartest people in the industry to work for you. your bank undertakes such a complicated business on the one hand but on the other hand oftentimes you and other banks of your size cannot seem to do something as simple as straighten out your own paper work promptly. it is the plight of the american homeowner -- should have the same attention that the bank gives to its cio office? >> yes. it should. we should do it properly and for anyone in this room that has issues that were not followed up, constituents, send it to meet or to our governor that will take care of it right away. >> thank you. >> senator. i think this has been instructive to the public. i think you told senator shelby that the purpose of hedging is to burn a lot of revenue in the event of a crisis. and i think you said that hedging worked to an extent in2008 for your company. can you quantify the extent to which hedging worked in 2008? >> i do not recall the 2000 a year, but the synthetic credit portfolio did earn several billion dollars of income in the three-four years before it lost some of it. we can follow up. >> i think that is probably what we need to do. with the volcker rule, you said, you said you did not know what the volcker rule is. boy, if you don't, we don't. i think you know how it is being drafted. how would that have affected the cio's ability to do that hedging in 2008 and protect several billion dollars' worth of losses? >> i think you are allowed to portfolio head under the current structure. what it morphed into -- i think we should step back for one second. the senator will agree with me. the important part of the volcker rule isn't portfolio hedging. it is the ability to effectively raise capital for companies and clients and investors. and we have the widest, best, the deepest and most transparent capital markets in the world. the capital markets of america are part of the great american economic business engine. we have the best and the world. we had some problems. we should recognize the best. how does that benefit you all that we have the best in capital markets? the cost of buying or selling shares stock is 1/10th of what it was years ago. the cost of doing is what is 1 /10th of what it was years ago. they do it at a cheaper price. which means a day -- fidelity and pimco, are doing things cheaper. that is a good thing for them. it allows corporations to issue debt cheaper and quicker. a large corporation wants to issue $5 billion? it can be done in midday are around the world. they get a better deal at a cheaper price. the liquidity in the market keeps the spread low and benefits investors and issuers. the secondary markets and the primary markets are directly related. if the costs are lower here, if consumers and investors are educated about companies and we spend $1 billion educating companies, then the issuers can do it. the investor is not fidelity. it is the person fidelity is investing four. those are retirees, mothers, veterans, state municipal plans. it is a good thing. the volcker rule had so many pieces to it. don't think of it as binary. think of it as traffic laws. some cars should go 65. some should not. some lights should be bright. we have the widest, the cheapest and best capital markets in the world. it would be a shame to shed that out of anger. all of these securities are different. if we are going to make liquid securities, we need to own that. we cannot turn them over quickly. we need to buy securities in anticipation of investor demand. we need to buy securities from you that we cannot sell to robert you want to sell right now. you are our client. we make a little bit of money every time it happens. not a lot. we do not take a lot of speculation. all we ask is go to the detail to make sure we get it right, that we end up with the widest, best, the bis capital in the world. i do not want to be sitting here in 20 years figuring out why it is elsewhere? >> i hope you can appreciate that i have five minutes. >> i'm sorry. >> second round here. ou told senator corker, the financial system is a safer today. you cannot say dodd-frank 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 what the jurisdiction is. have i paraphrase your testimony correctly? >> i think some of the thing dodd-frank as of made is safer, but the most important thing is higher capital, better risk management and a lot of the things that cause the problem do not exist anymore. that was because of market. subprime mortgages. >> you said something else that caught me by surprise and that was his testimony about that nobody got all of the pri arties in a room, democrats and republicans and talked about what was needed and what needed to be fixed. did i hear you correctly? >> yes. >> did you volunteer to be part of that conversation? >> yes. we spoke to a lot of people. so all lot of people were interested. our folks did a lot of research carro. i know anger led to that. it would have been better with more collaboration. >> i'm going to follow up with a question for the record, but let me ask this question about the living will. are you telling this committee that j.p. morgan chase has a living will that is approved by government regulators? >> no. it has been drafted and given to the regulators. they will be responding to this, several iterations to get it right. the have to coordinate with foreign entities. it will take a bit of time. >> in 2008-2009, your company benefited from half a trillion dollars in low-cost federal law, $25 in tarp loans. untold billions through the bailout aig that address your exposure to derivatives. with all that in mind, would n't j.p. morgan have gone down without the massive federal intervention directly and indirectly in 2008? >> i think you were misinformed. i think that misinformation is leading to the problems we are having today. j.p. morgan took tarp because we were asked to by the secretary of the treasury. the fdic in the room. tim geithner, and ben bernanke. we did not need tarp. -- we wered that = told, take this tarp and stop the system from going down. they said, please use these facilities. and were not bailed out by aig. aig itself, we have a direct loss of $2 billion. we would have been ok. >> you have a difference of opinion with analysts of the situation whose feltt the aig bailout benefit you. this is not your hearing. i also only have five minutes. so let's agree to disagree but i think many analysts reached the conclusion if you applied that old testament justice in 2008, j.p. morgan would have gone down and you would of been out of a job. it goes to the enormous frustration and how many companies in the history of the planet have been offered half a trillion dollars in low interest loans? not many. but some basic concept behind the volcker firewall is banks are in the lending business. do you share that basic philosophical idea? >> we are not in the hedge fund business. >> i want to turn to report. jamie dimon was elevated from treasury to chief investment officer, had reported directly to him, -- to seek profit by speculating in higher-yielding assets such as credit derivatives, according to half a dozen former executives of the company. that sounds like offering a hedge fund and doing so at your direction with government insured deposits. >> here are the facts. we have $350 billion in assets. the average rate on aa plus. the average rating is two year. the average yield is 2.7%. those are characteristics of a very conservative portfolio. in addition, a we have $150 billion sitting in central banks. those deposits are considered conservative, not aggressive. in this other area, yes there is legitimate complaint. gu>> david olson said, this is jamie's new vision for the company. you disagree that was your instruction in building a cio unit. you disagree? >> i do not know what he means. >> here is the general picture. it is one which the assets in cio expanded fivefold over four- fivefolyear period. . . . . . [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> finally, i hope today's hearing can reveal what lessons mr. jamie dimon and j.p. morgan chase and others have learned. this hearing will serve a valuable purpose if it prevents others from performing similar actions. and mr. dimon's own money was lost, but it was never heard from j.p. morgan chase who lost $2 billion of the taxpayers money. there's a private lawsuit also thus far. >> this morning, opening statements will be limited to the chairman and the ranking member to allow more time for questions from the committee members. i will note that senator warner is a valuable member of this committee is absent to attend his daughter's graduation, but he will be submitting a statement and questions for the record. 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 institute our witness. mr. jamie dimon as the chairman of the board and president and chief executive officer at j.p. morgan chase & co. mr. dimon, your full written statement will be included in the hearing record. please begin your testimony. >> chairman johnson, ranking member sell bi -- shelby i am here to talk about losses. these losses have generated considerable attention and while we're still reviewing the facts, i will do everything i can to explain. j.p. morgan chase provide financial services for businesses including deposit accounts, loans, capital mortgage advice and fundraising and other investments. let me start by explaining what the chief investment office does. like many banks, we have more deposits than loans. at quarter end we held nearly a trillion in deposits and more in loans. excess cash was invested including mortgage-backed securities, high-quality securities and corporate debt and other overseas assets, and managing the assets and liabilities of the consolidated entities. in short it's to manage a nearly $250 billion portfolio. it also maintains a smaller synthetic credit portfolio whose original intent was to hedge against a systemic event like the financial crisis or euro zone situation. so what happened? in december of 2011 as part of a firmwide effort we instructed t.i.o. to reduce risk-weighted assets and associated risks, to achieve this in a portfolio, they could have simply reduced the existing positions, instead, starting in mid january it embarked on a strategy that entail any positions that it did believe offset the existing ones. this strategy, however, ended up in a hard-to-manage risk. rather than protect the firm, it created new and potentially larger risks. as a result, we let a lot of people down, and we are sorry for it. let me tell you how it went wrong. these are not excuses. these are reasons. we believe what went wrong these are detailed written testimony. strategy for reducing the synthetic portfolio was poorly conceived and in hindsight they did not tons risk they took. it should have been specific to that portfolio and much more gran your, i.e. only allowing a certain amount of risk on each risk being taken. it's gotten more scrutiny including myself, and a in response to this incident we've already taken important actions we've appointed entirely new leadership and we've made aggressive -- though it does not reduce the losses already incurred, it reduces the probability and magnitude of potential future losses. we are also conducting an extensive review of this incident which our board of directors is overseeing. when we make mistakes we take responsibility and are often our own worst critic. we can never say we won't make mistakes, but we do believe this was an isolated event. we will not make light of these losses, but they should be put into perspective. we will lose some of our shareholder's money but no client or taxpayers' money was lost because of this. at quarter's end we will o'in loan reserves. regulatory capital standards, as of march 31, 2012, our ratio was 10.4%. our estimated tier one ratio is at 8.2%. both are among the highest levels in the banking sector and we expect both these numbers to be higher at the end of the year. all our lines of business remain profitable and we continue to serve businesses. we expect our quarter to be solidly profitable. in short, they cushioned us against unexpected loss in one area of our business. while this is embarrassing, it will not detract us from our noigs serve clients in their communities around the globe. j.p. morgan chase raised capital and provided credit of over $1.8 trillion for consumer and commercial customers, up 18% from the prior year and also provided credit to u.s. small businesses up 15% over the prior year and in the face of economic head winds we made the decision to step up and only bank to commit to lend billions to the states of california, new jersey and illinois. all of these activities come with risk, and just as we remain focused on serving our clients, we also remain focused on guarding against this incident in the future. we will emerge a strongers, smarter and better company. i'd also like to speak directly for a moment to our 260,000 employees, many of whom are probably watching today. i want all of them to know how proud i am of this company and all they do every day for their clients and communities. thank you and i welcome any questions you might have. >> thank you, mr. dimon, for your testimony. as you begin questions, i ask the court to put 5:00 minutes on the clock for each member. >> mr. dimon, there was clearly a breakdown in risk management at your firm. what did you do when you made your -- in a teapot comment? why were you willing to be so -- months before publicly announcing the losses when it appears you did not have a full incing of the trading strategy? >> let me first say when i made that statement, i was dead wrong. i had been on the road and i called and had spoken to our risk officers, c.f.o., and they were looking into it. there was some issues -- and i was assured by them, and i have the right to rely on them that they thought this was a small, isolated issue. they look at things like, how bad can it get and stretch it. and in no way did it look like it would get used as it did after april 3. >> mr. dimon, there were throorts the c.a.o. had scrapped the risk limit that would have record limits if they had exceeded $20 million. is this true? and if so, why was the limit removed? >> there was no loss of $20 million. >> what do you mean $20 million with an m? >> oh, million? >> no. i am unaware of a $20 million loss limit. they had their own limits on credit, risk and exposure. march, some of those limits were triggered and that the point asked to stop taking risk heavily into the area. sometimes triggers loinlts do get hit. people then decide what to do about it. >> there have been concerns raised about the changes made in the risk model. when were regulators notified? why was the risk model changed? and does this change the true risks of the trading activity? >> so what i am aware of is some time in 2011 the c.i.o. asked to update their models partly -- model reviews are done by an independent group. they start the process six months earlier, and in january did in fact put a new model. i should note that models change all the time and always adjust to try to be better. the models are run and approved by the model review group and implemented in january and did increase the amount of risk as it was able to take. on april 13, we're still unaware that the model might have contributed to the problem, so when we found out later on, we went back to the old model. so the old model was more accurate in hind site than we thought the new model was going to be. >> it isal suggested there were multiple warnings at the control of the c.a.o. that in your testimony states your trading strategy was not reviewed outside c.a.o. you do, -- did you, mr. dimon, make the decision to accept the c.a.o. over any review of risk control outside of the unit? or why was no one watching? >> i think the first error we made was the c.a.u.'s had done so well for so long that there was a little bit of complacency. they did have their own risk committee and the risk committee was supposed to vet and overview. but that independent vet should have challenged more rigorously this synthetic portfolio. the synthetic portfolio itself should always have more scrutiny. they should have gotten the limits right from the start. >> mr. dimon, is the paid structure as employees for the c.i.o. incentivize risky behavior that led to the massive trading loss instead of those who were reduced to bank risks. >> will you seek fallbacks from traders, management and executives involved in this trading debacle? >> i think when you speak of compensation, j.p. morgan to startwith, we did not have the five or six years special sevrens packages for change of control and parachutes. there was no one on the c.i.o. paid on the formula. they were not allowed to do what they wanted. they can't take too much high yield exposure. they were paid for what they did for the whole company. when we pay people we look at their performance, the company's performance and their performance includes recruiting, training, integrity, all the things we need to do to make it a better company. so i don't believe the compensation made this problem worse. but and like i said -- your second question was corebacks. when the board finishes a review, the appropriate time to actually make those decisions, before you finish your final review you can expect to take proper corrective action, and i would say, likely, and it's subject to board, but it's likely -- >> mr. dimon, so that we would have some idea of what happened , could you explain a little farther what really happened without divulging your proprietary interest. we don't want you to do that. in other words, you were managing risk. what were you managing? >> the biggest risk we take is loans. the excess deposits, we have a $250 billion portfolio. its average rate is double-a-plus and there's an unrealized earth of $7 billion and we also have $150 billion invested in cash in places around the world. >> but in this particular case, explain to us without getting into your proprietary area, what you were doing and what went wrong? >> so the synthetic credit portfolio. >> and by synthetic credit portfolio what do you mean? >> the swaps and those things traded in the market. >> you took a position in them. >> yes. what it was meant to do was earn and maybe make a little bit of money. but if there was a crisis like lehman and euro zone it would reduce risk dramatically by making money. the in fact during 2008 and 2009, it did in fact invest in one of those. >> were you investing or hedging? >> i would say hedging at the time. and -- >> if credit went bad? >> if credit went really bad, this would do better. this would do well. that was original intent. in january, february, march, we askedhem to do to reduce the risk. they created a far larger portfolio that had far more risk in it and they were far more complex risk and on april 5 we were not aware of that but shortly after we were and we then made an announcement and looked bat risk. >> to detail what really happened. we're talking in general terms now, would you feel better in a closed hearing or would you not like to divulge things because you still have an interest in proprietary interest. >> i would prefer not to divulge things because we told our shareholders on july 3 we intend to make far more disclosure about what happened and what we have done to reduce risk in the portfolio. >> i guess the question comes up, is this hedging or proprietary trading? according to some press reports there's question about whether the chief investment office was supposed to be hedging risks or earning a profit. it's been reported this office contributed to nearly $4 million of your all-world profits. what was your expectation for this c.i.o. unit? was it supposed to hedge? >> the whole c.i. unit invests money and earns income. like i said, that's a broad array of diversified -- that is used to branch out and pay our people, so yes, it's supposed to earn a lot of revenue if there was a crisis. i refer to that as a hedge. it was protecting the biggest risk of the company. there's two major risks of the j.p. morgan chase, dramatically rising interest rates and global type of credit crisis. those are the two biggest risks we face. so the hedge was meant to improve our safety and soundness, not make it worse. >> what went wrong? the way hedge was contrived or events beyond your control? >> i think the way it was contrived, it changed into something i cannot publicly defend. >> lessons learned. what have you as a c.e.o. of j.p. morgan, which is our largest bank, what have you learned from this debacle? >> i think that no matter how good you are, how confident people are, never, ever, get complacent in risk. challenge everything, make sure those in risk committee are always asking about things and that you have granular limits saying when you make your mark. including things like liquidity risks, they are out of your control. we had those disciplines in place elsewhere, but we didn't have it here, and that's what caused the problem. >> thank you. >> senator shurma, thank you and foong and thank you for coming. my fist question is about risk committees. i was a proponent in dodd frank about increasing corporate governments and sought to having included a provision requiring all banks with over $10 billion in assets and non-bank financial firms and have a separate risk committee on the board that includes at least one management expert >> as you know some questions have been asked about oversight in your -- you already had one, so you didn't need legislation to do it. but what went wrong with the committee and what can you suggest to the regulators as they form rules about the committee? why didn't you its job? >> well, the risk committee does ooh lot of work in conjunction to the audit committee and i think it's a little unrealistic for the committee to capture something like this. i would point out this risk committee took this company through the most difficult financial crisis of all time with flying colors, so the risk committee -- i would -- since recently, we've had two new directors which also have sneerns financial markets. >> ok. so you teal risk committee, this was too small of an temperature for them? just give me a little more text for this. >> i think the risk committee reviews a lot of issues, regulations, requirements, they take the lead of management. >> to the step we were misinformed, we were misinforming them. >> ok. second question goes to the broader context. i think what frightens most people about what happened is not its effect on j.p. morgan chase but i think the question that bothers most people is what's to stop this from happening again and maybe being a larger loss of the same time. but a well whalsed institution smaller than -- firms like lehman brothers. so were we just lucky that we found out about this one when we did? what is your assessment, as someone who knows financial industry, about the danger of this type of thing happening in other institutions that transnot as well capitalized as j.p. morgan chase and the affect on our financial system? >> we do have temperatures -- we do have identity ms already. we do have items already. a lot of the restraint has already happened. >> what about non-banking institutions that don't have the same requirements but are engaged in similar activities that could cause a problem for the banks like yours? >> final point, the chairman asks this but it's about clawbacks. and i'm good hear there is a clawback policy. it seems to me the appropriate things to do when people make tens of millions of dollars for taking risks, and they do it moorely. and if there's a callback, there's an incentive can you tell us a little bit about the policy that you have for clawbacks. i know you don't want to talk about individual cases, but tell us how it works, how widespread it is and how mandatory it is and that kind of thing. >> well, there's several layers but for senior people as most are, we can clawback for things even like bad judgment. we can claw back things like stock, care bonuses, so it's extensive the decision was to -- a lot of people walked away with a lot of money. in this particular case the board will review every single person involved and what part they did and didn't do and was it appropriate? >> is there a limit or is it discretionary and second and final question, has it been used thus far in your bank over the time you've had the policy? >> no. the new policy hasn't been described thus far. it's somewhat limiting over what we paid her over the past two years. >> thank you mr. chairman and mr. dimon. last year testimony we were presented by the regulators, one of the tensions we face here is we want to be sure that we are adequately regulating our financial institutions, but we want to make sure that we also don't have the regulators running our private sector institutions. that testimony last week, conference troller curry from the occ said there were roughly on-site at j.p. morgan chase. is that correct? >> i believe so. yes. people say our primary focus in terms of perspective and policy so make sure the banks are properly capitalizeded? and what other areas of oversight would be the most effective for us in terms of our regular tori restructure. >> regulators do what they can do but i think you have to give realistic objectives. i don't think realistically they can actually stop something like from happening. it's clearly management mistakes. so i think the most important thing you have to do is high capital, good liquidity standards, proper closures and governing and risk committees. all of those things won't stop mistakes but lit make them fewer and farther between. i think you are not going to accomplish some of those things. >> thank you. terms of the capital structure and -- one of the things we learned the stret -- 80 billion and still be adequately capitalized, is that correct? >> we will still be adequately capitalized, but i wouldn't be the person standing in front of you right now. we are great at reviewing stress tests. the fed put us through a severe stress test. like 3% of unemployment and crisis in europe and markets as bad as what you saw after the lehman crisis. and we came through that with flying colors and stressed other scenarios. because there were others that you could have said affected companies like the bank. but so much so to the extent that you never question j.p. morgan. >> well, thank you. and we have that kind of capital. and your current cure one capital is approximately $128 billion? >> i don't know the number offhand, but sounds approximately correct, yes. >> with regards to the volcker rule, some said it's not possible to distinguish between appropriate trading and hedging. if what we implemented, the posts baseball not on banks like yours. and if so how will we make that didges? >> i think it will be very hard to make a bright line distinction between trading and hedging. because you can look at almost everything we do and call it the other. every loan we make, it's because of money. if we buy treasury bonds, we lose money, i lose money. i understand the intent of the volcker rule. i completely understand that. i think the devil is in the detail with how these rules are written to allow the good of the capital markets and not the bad. >> i'm happy to talk more on capital markets. tell me for a minute how you would describe that, what is a proper hedge in the volcker rule? >> something that i think should be asloud to protect the company in bad outcomes. >> or you can be exactly right. you can analyze that. so i do believe you should be allowed to have -- probes and think of the thing you do in the growing short credit. >> thank you. >> senator reid. >> thank you mr. chairman. i think this is a very important hearing, because the issues as they are raised go right to the capability of large institutions to manage risks and complimenting that is the ability of regulators to oversight. i think it also is a strong case, in my view, for a very clear but very strong volcker rule. and also for standing up finally a director at the austin financial research, i know i've talked to chairman johnson and also ranking member shelby about that. let me ask you a question. this goes to rest management. in your proxy materials, risk management seems to be the operation of the c.i.l. was this -- i know there were several changes, but investigating the c.i.o., the chief investment officer? >> we have a risk committee and the heads point to the head of the risk of the committee and the risk committees and head of the risk exposure will be out there. obviously that chain of command didn't work in this case either. so you can blame it on anyone in that chain that if we had been paying more attention to why there wasn't more -- we could have caught this and stopped it at this point. there's an independent model review group that looks at a change in models. models are constantly being changed to -- and they never are totally adequate in capturing changes in businesses, concentration, liquidity and/or geopolitics. things like that. we don't trun business on models. models are one input. we should be looking at lots of other things to make sure you manage your risk properly. >> did you share or did the eoc inquire about the modeling in changing. for the -- for the record, was there -- >> we took it out and -- >> why didn't you change the model firm, why? >> well, the firm has hundred of models. this one is very specific to a synthetic performance portfolio. >> let me get back to the e.o.c., did you bring it to their change? >> they often look at models. from models they actually do in extensive detail, i don't know about this one. >> if one of the practice sincere it's the chief investment officer's responsibility so look at the bar which changes more than other risk and their job as risk management and not generating profits by investing deposits. it seems that their model was loosened up considerably, giving them opportunity to engage in more risky activities. is that your conclusion? >> maybe i can. it puts in a thraveg allows them to take more risk. we don't sazz of today believe in nefarious purposes. we believe it was done proper live by the independent modeling group. but once we saw tha

polis: i'd like to inquire if my colleague has any remaining speakers? i would like to inquire of the speaker how much time remains on both sides? the speaker pro tempore: the gentleman from colorado has 2 1/2 -- 2 1/4 minutes remaining. the gentleman from south carolina has 6 3/4 minutes remaining. mr. polis: i yield myself the remainder of the time. the speaker pro tempore: the gentleman is recognized. mr. polis: mr. speaker, at a time when millions of americans are still out of work, here's yet another bill on the house floor that does nothing to create jobs or get our economy back on track. this house has already passed repeals of the affordable care act several times, and here we have another bill that takes three bills and run lumps them together with a controversial payment mechanism that's a huge tax increase on the middle class and drives congress further from consensus and sound governance. again we are spending another legislative day repealing various parts of the affordable care act that the president said he would veto with no opportunity for members of either par

did you know if occ inquired about trades or the five regulators in new york, did they inquire about the trades prior? >> i don't know. >> at what point did occ take steps to challenge the trades? >> i think the second that they understood the significance of the trade, they started to challenge it every day. and they continue to. >> 5 regulators in london enough? >> i don't no. in this modern day and age, they get all the reports from london and they can do it by an telepresence. 19,000 employers in columbus served 30 million americans and deserve a lot of middle-market companies, they innovate, we run a lot of call centers there, our credit cards that we ship around the country, so those people are not just doing ohio-based business. >> since 2007 your chief investment officer has grown from 76 to $307 billion. occ says your activities were not considered to be high risk but that a similar level of activity, large hedges that are complex are not present in other banks. my question is should occ have been more focused on trade with synthetic derivatives that they admit now in hindsi

grimm: i'd like to inquire if the gentleman from texas has any more speakers. mr. doggett: yes, i do. i'd like to inquire if the gentleman from new york has anyone to defend opposition to this measure? mr. grimm: i reserve the balance of my time for now. the speaker pro tempore: the gentleman from texas is recognized. mr. doggett: mr. speaker, i yield myself an additional three minutes. the speaker pro tempore: the gentleman is recognized. mr. doggett: mr. speaker, this is a truly amazing debate. the motion is a narrow one asking that the house simply join with republicans and democrats in the united states senate to include within this transportation bill a provision that will yield about an additional $1 billion for the repair of bridges, for the construction of transportation systems across the country, and will do so not by raising taxes or the tax rate on anyone, not even by closing one of the many outrageous loopholes that exist in our tax law that allows some to gain advantage because of the power of the lobbyists and their lawyers and their accountants to write special provisions into the law and

do you know if occ inquired about trades as the regulators, these five regulators or maybe regulators back in new york, did they inquirebout the trades prior to the earnings call? >> i don't know. >> you don't know the answer to that. at what step did occ take steps to challenge the trades? >> i think the second they understood the significance of the trades, they started to challenge it every day and they continued to. >> is five regulators in london enough? >> i don't know the answer. i would say in this modern day and age they get all the reports from london, all the reports. they can do it by telepresence. physical location isn't important. i should point out by the way the 19,000 employees in columbus serve global clients. they serve 30 million americans, largest middle market lenders, middle market companies. they innovate, run call centers there. they process credit cards which we ship around the country. those employees are not just doing ohio-based business. >> i understand that. i certainly appreciate that. >> couple of questions. since 2007 grown to $170 billion. orc says, quote, your activities weren't hist