secretary monroe: item 2b, the occ directors' report. president mazzucco: good evening. >> good evening. i would give you a more detailed report on june 20 as well as the occ report, when last week's meeting was cancelled. i will also discuss the results of the controllers second audit of the occ as well as the mayor's proposed budget as it impacts the occ, but first, at the request of president mazzucco, i will discuss the sec's receipt of an award -- discuss the occ's receipt of an award, and this is the actual award, and i will pass it down. careful. breakable. very good. on june 1, the occ program was honored at the annual peacemaker award benefits, which is held at the city club, san francisco. our mediation program was presented the award for excellence in alternative dispute resolution practices. in addition to the award, the supervisors, the president, david chiu, who was present at the luncheon, presented a certificate of honor, which i will hold up. this was signed by all 11 members of the board of supervisors, and then finally

yeah, the occ complaint continued. and when you came in, i noticed that there was a real change in terms of really trying to beef up the occ to be more meticulous, and i compliment you on that. because it is not in the interest of police officers to have an adequate investigations by the occ. it is in their interest to have solid investigations so if the police officer did something wrong, they can be quickly and efficiently considered for discipline, and if they did not do anything wrong, they can be quickly and efficiently cleared. i am curious just to know if there has been in decline, have you have seen that correlating for the current staffing and the requested staffing. >> thank you very much, supervisor wiener. i would agree with the analyst that the first year of the decline was 14%. but then it dropped down last year to 8%. the projections based on the cases we received today is it the decline continues, it would only be 3%. so it has leveled off. it mirrors the national trend. and the way we determine the cas

we had a conflict resolution meeting, and i was very proud of the occ. i was very proud of the commission, because we are doing something different. does not have to be my word versus your work. it was really rewarding. so those are the things that i have to report. so it has been busy despite not having a meeting. commissioners? anything to mad -- add? commissioner lufty? commissioner lufty: it was incredible to hear that. somebody not paying their muni fair, ending up with a very dangerous situation, so i would encourage anyone who did not watch it on sf gov tv to go back and watch them and their service. two of the officers who won the gold medal were actually recognized statewide for their service, and that was officer greg from -- officer griffin and another, so i want to give them particular recognition. i was also able to ride along in southern station. i took advantage of not having a wednesday night meeting, and i was able to see two things that i was able to report back on. one is the officers are implementing the new web-based police reporting

did the occ screw up in allowing these jpmorgan trades to happen? >> senator, we are going to critically look at that question as part of my goal in reviewing what happened at jpmorgan chase is not just to see what the bank, itself, did or did wrong, but also how we can improve our supervisory processes at the occ. so, it will be a, you know a critical self-review as part of the process, and -- >> how long is that self-review going to take you to come to a conclusion? >> i hope to have it done as quickly as possible, senator. >> what does that mean? >> i hope within the next several weeks, and no more than a few months. >> i do want to reiterate that my goal was as comptroller to have a effective and fair supervision at the comptroller's office, and it is imperative in the lessons learned from the 2008 crisis that are clear to me and my colleagues at the occ that we need stronger capital, which we are getting through the possible three and other rule makings, and we also need heightened expectations, and we are requiring that of the largest institut

about a year ago last june my committee held a hearing before the occ in which he testified. i know you were not there, and i appreciate your coming to testify, especially with the history of your agency, and i want to share some of the testimony and i appreciate and i would insist on brief answer, because i have several questions and limited time, as you know how it works and i would particularly appreciate a yes/no response, and the head of the occ has testified, quote, that given the importance of the role of the institutions play and the overall financial stability of the states that we have instructed them that they should not operate with anything less than strong risk management, and audit functions and anything less will no longer but sufficient. unquote. jamie dimon himself said that jpmorgan's trades were complex and flaw and poorly executed and poorly monitored. i would like a yes or no answer to this question. did the occ meet the standard prior to your being there, meet the standard that it set for itself in this case? >> before i answer that, doi want -- i do wa

this means that the occ supervises j.p. morgan chase. whose recent $2 billion-plus trading loss has been in the news. and because taxpayers basically guarantee j.p. morgan's deposit the american public i believe has a right to know whether these trades threatened or could have threatened the solvency of the bank. in addition this committee i believe has an obligation to determine whether this loss reveals any operational or regulatory weakness that could cause problems in the future. next week, here in this committee, jpmorgan ceo jamie dimon will appear to explain his bank's actions. today i would like to hear the occ's views of what happened at jp morgan. in particularly i believe the comptroller should give his assessment as whether the trades ever threatened the safety and soundness of one of our nation's largest banks. banks are in the business of taking risks. and losses are an inescapable part of risk taking. job creation and economic growth depend on banks taking risks. it's the job i believe of regulators to prevent banks from t

for the occ to in your words determine what in retrospect the ocht occ could have done differently. you want to look forward, that's your job, but you need to identify what mistakes were made, by whom those mistakes were made and if j.b. morgpmorg hold senior executives accountable, we should expect nothing less than you, mr. curry and the people who work with you, whether they're the people there now or the people whom you replace them with. thank you. >> senator schumer? >> thank you, mr. chairman and thank the witnesses. one of the obvious issues raised is the role of risk mct at banks especially large banks, as some of you know, i fought to have included in dodd-frank a provision, section 165h requiring all banks with over $10 billion in assets and all non-bank financial firms supervised by the fed to have a separate risk committee that includes at least one "risk management expert having experience and identifying assessing and managing risk exposures of large, complex firms." now, mr. curry, in your testimony you say, "you will require the bank to adhere to the highest managem

the occ letter says though that occ examiners were unaware of the level of risk occurring at your chief investment office until april. here's my series of questions. was the occ told about the trades taking place in your cio office prior to the april 6th media reports? >> we try to be very open with regulators. we give them reports. they do get some reports. we give them what they want. we give them the information they want. we probably have them misinformed. the mistake we made, we passed on to them. but the second we found out, the first people on the phone was to our regulators to explain we have a problem, we want to describe it to you. they have been engaged with them. >> april 13th, earnings call were they told about the trades prior to the earnings call? >> like i said, they get some of our reports, but since we were misinformed, we probably would continue to misinform them. once we found out shs the first people we call is the board and then the regulators. and probably not even in that order. >> the issue is partly your side, partly the occ side. do you know if occ inquired ab

i hope that all the regulators and certainly the occ understands that. thank you. >> senator? >> thank you very much. this is one of many hearings that i participated in that this committee held with regard to the oversight of dodd frank. when i asked for assignments a year and a half ago, i asked for the banking committee and was told by some, you don't want to be on the banking committee. the work is done and they passed dodd frank and the hay day has come and gone and in my view, oversight implementation and modification and alteration of dodd frank is a very important task for this congress. one that i wanted to engage in because the consequences are tremendous to directly to financial institutions, but more importantly to the customers and borrowers and depositors that we care a lot about. it is concerning to me while we continue to have these hearings, my concern is that there is no legislation that follows the series of ideas presented and certainly i would guess almost every member of the committee expressed here in a hearing or in a letter to the regulators, a desire

the occ oversees j.p., morgan chase's banking. also testifying this morning consumer financial protection bureau director and deputy treasury secretary. >>> this hearing is called to order. it is also an opportunity to discuss whether bank regulators the implications of the laws. on a bank with j.p. morgan's solid reputation announces that it has lost millions of dollars in a large trade reportedly designed to reduce risk it reminds us that no financial institution is immune or in bad judgment. while the j.p., morgan trading laws does not appear to have caused systemic problems it is a clear reminder that wall street continues to need better risk management, vigorous oversight. if the rules are broken a yield in enforcement. to repeal or weaken wall street reform and define would take us back to the days before the financial crisis of 2008. wall street reform was a response to the crisis caused by a lack of consumer protection, reckless behavior in the financial sector and regulators who failed to take action in time. we now have

could the occ have done differently. you need to identify what mistakes were made, by whom those mistakes were made and of j.p. morgan can hold its senior executives accountable which bay appear in part to be doing, which expect nothing less from the people that work for you. thank you. >> senator schumer. >> thank you, mr. chairman and the witnesses. one of the obvious issues raised by j.p. morgan trading losses is the role of risk management at banks, especially large bank. i thought to have included in dodd-frank, a provision, section 165h requiring all banks with over $10 billion in assets and all non-banking financial firms supervised by the fed to have a risk committee that includes at least one risk management expert having experience in identifying, assessing, and identifying risk exposures of large firms. in your testimony, you say you will require the bank to read here to the highest risk management standards? in your assessment, the j.p. morgan has sufficient expertise in risk management to carry out its dutie

was occ? >> i don't know. they get some of our reports. we probably had them -- since we were misinformed we probably continued to misinform them. the important thing is once we found out, among the first people we called were the board and then the regulators and probably not even in that order. >> the issue is partly your side, partly occ side. do you know if occ inquired about trades as regulators? the five regulators or maybe regulators back in new york, did they inquire about the trades prior to the earnings call? >> i don't know. >> at what point -- can you tell us at what point 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. they continue to. >> five investigators in london enough? >> i don't know. this day in age, they get reports from london and they can do it by telepresence so physical location isn't as important. i should point out by the way, the 19,000 employees in columbus, serve global clients. they serve 30 millio

as of may 31, the occ opened 320 cases, closed 363 cases. of notes is a low number of pending cases, 321. that reduced the investigators caseload to about 21 to 23 cases. i will talk about the adjudication of cases that the occ sustained. in one case, we had a finding of conduct reflecting discredits. the chief concurred with that and gave the officer a written reprimand for harassing the complaint, who was a signature gatherers for a ballot petition. in another case, neglected duty, an officer fell to prepare a form -- failed to prepare a form that had to do with releasing an individual when sober. the officer was admonish bread and other neglect of duty case, the officer received a written reprimand and that was because the officer violated to general quarters when transporting a juvenile female passenger. the first general order required the officer to broadcast the in the mileage of the transport of a female passenger. because the passenger was a juvenile, it was a violation of a general order. the final adjudicated case in may was for n

secretary monroe: item 2b, the occ directors' report.sident mazzucco: good evening. >> good evening. i would give you a more detailed report on june 20 as well as the occ report, when last week's meeting was cancelled. i will also discuss the results of the controllers second audit of the occ as well as the mayor's proposed budget as it impacts the occ, but first, at the request of president mazzucco, i will discuss the sec's receipt of an award -- discuss the occ's receipt of an award, and this is the actual award, and i will pass it down. careful. breakable. very good. on june 1, the occ program was honored at the annual peacemaker award benefits, which is held at the city club, san francisco.

curry, the occ has dozens and dozens of examiners at jp morgan. did your agency check the risk management and internal controls of all aspects of the bank including the chief investment or did you miss this? and second while regulators are not in the position to review every single trade, what assurances can you give us that the bank regulators will be able to monitor situations where large trades done for hedging or other purposes can bring down a firm or have a systemic impact on the broader economy. >> one of the major focuses of our examination and supervision activities is risk management. we look at risk management in the entire organization and within key areas where there is a substantial risk facing the institution. that process is intended to go across the entire organization in those key areas. in this particular case we are looking at whether there were gaps within our assessment of the risks and the risk controls in place. we are in the process of evaluating that on our on going examination. the point i would make in terms of our focu

the occ is not in agreement with the investigator cut on page 39. to the comptroller's office, last week we asked you to look at the civilianization work and to true up some of the information on the reports. that was previously done by your office. i am wondering if you had any information to share? >> you have a copy of the revised memo which we drop off this morning. we worked with the police department during the last week to ensure that we're netting out of it, for example, civilians that are at the occ. it does show, as you can see on table b of the memo, it shows a growth in budgeted civilians since opposition c was passed in 2004. 222 to 326 currently. and the proposed budget as the additional positions for the current year. we worked with the police department to clarify which -- in which cases civilian positions that are proposed in the budget or that we reviewed in the past are currently being staffed by light duty officers, and almost uniformly throughout the proposed budget in cases where the police department and the mayor's office hav

the occ has begun efforts to heighten expectations for the largest institutions we oversee. this process includes increasing our awareness of risks, facing banks and the banking system ensuring the risks are understood and well managed and raising our expectations for management, capital, reserves, liquidity, risk management and governance. it will take time to achieve these objectives and we must remain vigilante in maintaining our course. my testimony provides considerable detail about these efforts. i want to use the remainder of my time to provide an overview of what the occ is doing in response to the jpmc losses reported in may. we are the primary regulator of jpmc national bank with the activity leading to its losses occurred. and we are responsible for the prudential supervision of the bank. since early april the occ has been meeting with bank management to discuss jpmc chief investment office positions, risk management and controls. as the positions deteriorated discussions turned to corrective actions and steps necessary to mitigate and reduce the risks of the bank

secretary monroe: item 2b, the occ directors' report.sident mazzucco: good evening. >> good evening. i would give you a more detailed report on june 20 as well as the occ report, when

was it evaluated by the occ? >> there are hundreds of thousands of models employed by large financial institutions to measure and monitor a variety of risks or other functions and the institution. under the authority of the applicable regulations -- we are required to approve their capital related models. there are other models at issue here. management related models for other models that would have been involved in this. gellar situation. we would not have had an express -- we would have been aware of them. we are of looking at our procedures for evaluating other types of models that are used by institution such as j.p. morgan chase. i would point out that one year ago, last april, the occ. published written formal guidance on the use of models by occ supervised institutions. that guidance does outline the pitfalls and areas in which banks and bank management must assess the use of models and measuring risk to run the organization. >> right now, we face a serious challenge in europe with european banks. who see

on-site examiners from the occ or full-time on-site at jpmorgan. is that correct? >> i believe so, yes. >> and again, what should the function of the regulators be? many people say our primary focus from our perspective in terms of policy should be to make sure that the banks are properly capitalized. should that be our primary focus and what other areas of oversight would be the most effective for us in terms of our regulatory structure? >> so the regulators, i have been in regulated business my whole life. regulators look at many things we do, they audit it, criticize it. i think it's important to recognize i think there have been improvements in companies including jpmorgan because of their audit and criticism. so i think you have to give regulators realistic objectives. i don't think realistically they can actually stop something like this from happening. it's purely management's mistake. again, if we were misinformed a little bit, we're not purposely but misinforming them, too. i think the most important thing regulators can do is high capital

they are not to direct their comments to the department or occ personnel. during the roles of public comment, the personnel nor commissioners are required to respond to questions presented by the public but may provide a brief response. individual commissioners and police and occ personnel should refrain however from entering into any debate or discussion with speakers during public comment. please limit your comments to 3 minutes. president mazzucco: thank you, inspector monroe, and welcome again, ace. >> ace washington. i spoke to the president, and i am asking for the permission to speak more than three minutes, not as ace washington -- can i speak, commissioner? no, no, no. it is not that you cannot. you have the authority is to do what you want. i am not new to this. i am trying to be professional. i am not speaking for ace. i am speaking for a race that is in a state of emergency, and it is called the african-american out migration, and this commission, excuse me, is bound by that. am i right or wrong? i am representing that to you as a representative

>> that is a related area at the occ. >> you are inquiring, but you wouldn't argue that case? >> not necessarily. >> i wouldn't think anyone would. we woke up trying to make money for the bank. so it's kind of a basic observation. the comptroller addressed this to you and i will ask to you keep your responses crisp to get through a series of questions. across america, small businesses are trying to get access to credit, they are highly frustrated and the ability to access credit is essential to the recovery of our economy. does it do damage to have the banks diverting deposits into hedge funds rather than making loans to families in small businesses? >> we are very supportive of small business lending by the entire spectrum of national banks that we europe vise from the largest -- >> that was not the question. is diverting into hedge fund rather than making loans damaging to our economy? >> i would hope not. i hope that was not the case. >> but it would be if deposits were diverted into hedge funds rather than making loans to small business. you are hoping it wasn't the case,

the occ letter says that occ were not aware of the level of risk occurring at your chief investment officer until april. here's my series of questions. is what the occ told about the trades taking place in your cio office true prior to april 6 media reports? >> we tried to be very open with regulators. they do get some reports. we give them what they want. in this case, since we were misinformed -- the mistake we made, we passed on to them. the second we found out, the first ones we got on the phone with was regulators and we said we have a problem. we describe them and they have been deeply engaged since then. >> that was april 6. april 13 earnings call, was occ told prior to the earnings call? >> i don't know. among the first people we called our board and then the regulators when we found out and probably not even in that order. " the issue is partly your side and partly occ. 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 sec

the occ spends within a character. it was within that character, all of the money was spent, even though it was not allocated to professional services. the money is used for training, to pay for specialized trainers , police officer standards and training, that is paid for by the state, but not for civilians. the analyst and die will continue to discuss -- the analyst and i will continue to discuss the statement that it was underspent. we do not believe that it was. supervisor chu: why don't we go to the budget analyst report? >> i did not hear if there were comments on our recommendations. did i miss that? supervisor chu: we did not ask. >> we would be happy to continue to work with the budget analyst. some of the recommendations are okay, but they were some of the smaller items. the larger items regarding overtime, and the licensing fees, which totaled a lion's share of the recommendations. cable need a lot of conversation. -- they will need a lot of conversation. >> that is consistent with my understanding of the $3

. >> 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 situat

the use of models by, uh, occ supervised institutions. and that guidance does outline, uh, the pitfalls and areas in which banks and bank management must assess in the use of models in measuring risk throughout the organization. >> okay. mr. wolin, right now we face a serious challenge in europe with european banks who seem to be in a much more adverse condition than the united states banking industry, based on capital and other measures based on testimony. put us in a stronger position. >> senator, i think that both dodd-frank and the ability of the financial oversight council to come together and discuss and understand these things, but also the work of the fed and other regulator s sitting at ths table to undergo the stress tests that have been at the core of making sure that our banking system is well capitalized and well cushioned from the kinds of exposures that might otherwise have have been important aspects of our being in a much better position than we were before dodd-frank and, frankly, in a much better position than our count

if so did the occ properly use the authority that it has. i look forward to hearing the comptroller's answers to these questions among others. also with us today is the acting chairman of the insurance. we have been told that dodd-frank will prevent future taxpayer bailouts. and insolvent financial institutions will be allowed to fail. yet under the fdic's plan for implementing dodd-frank's resolution authority, short term creditors would still be bailed out. the lesson we all should have learned from the t.a.r.p. bailout is that creditors of a failed firm should bear its losses. today i hope acting chairman would reassure this committee that the fdic's resolution authority will not institutionalize government bailouts. regrettably the fdic is not the only regulator that has taken actions that may institutionalize too big to fail. the financial stability oversight council led by treasury and the federal reserve board have recently used the authority granted by dodd-frank to designate several companies that are systemically important and are

we talk with occ examiners at the national bank. we talk with the fdic. with fcc when there's a broker deal involved in the organization. we have actually quite a matrix of communication. >> you described a matrix of communication but even with a matrix of communication, nobody was catching it. nobody was seeing it. we know the hedge funders saw it eventually because that's at least the periphery that i read that's the indicator. you know, is communication really working? are you communicating as information not as robust and granular as it needs to be. >> to keep this in context, a bunch of the -- there were significant changes in the portfolio, the cio portfolio in the first quarter of 2012. those changes were very significant contributors to this loss. as the company itself has mentioned, the reports that the company generated, the kind of review and risk management it had in place had serious flaws to it. we had access to that information but to the extent it was flawed in its own management didn't have a good handle on information and understanding t

the occ letter says that occ were not aware of the level of risk occurring at your chief investment officer until april. here's my series of questions. is what the occ told about the trades taking place in your cio office true prior to april 6 media reports? >> we tried to be very open with regulators. they do get some reports. we give them what they want. in this case, since we were misinformed -- the mistake we made, we passed on to them. the second we found out, the first ones we got on the phone with was regulators and we said we have a problem. we describe them and they have been deeply engaged since then. >> that was april 6. april 13 earnings call, was occ told prior to the earnings call? >> i don't know. among the first people we called our board and then the regulators when we found out and probably not even in that order. " the issue is partly your side and partly occ. 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 sec

>> that is a related area of inquiry at the occ. >> so you're inquiring, but you wouldn't argue that case? >> not necessarily. >> no, i wouldn't think anyone would, because he woke up each day as head of the strategic investment unit trying to make money for the bank, and so it's kind of a basic observation. small business across america and comptroller curry, i'll address this to you and try to ask you to keep your responses crisp so i can try to get through a series of questions, but across america, small businesses are trying to get access to credit, they are highly frustrated. the ability for them to access credit is essential to the recovery of our economy. does it do damage to have our banks diverting taxpayer deposits into hedge fund investments rather than making loans to families and small businesses? >> we at the occ, senator, are very supportive of small business lending by the entire spectrum of national banks that we supervise -- >> that wasn't the question, the question is diverting deposits into hedge fund investing rather than making loans damaging to our economy? >>

occ's focused occ of th of the internal models for capital purposes. we have a guidance that we issued a year ago, emphasizing the the importance of making sure that these models are appropriately designed and monitored and updated. that is essential if we will continue to rely on models as a key component. >> if institutional investors are demanding to move away from mobled discretion and -- model discussion and when you consider the banks are likely to use this less standardized model, it seems to me that during the models built,ese ri internal it seems to me it is pretty clear going forward that you have the discretion now to solve that problem. while we are talking what the benefits of capital, the conversation should not end there. i would hope that this incident at j.p. morgan reinforces the notion that internal risk models often fail. when it comes to mandating capital levels, we would be well served to focus our efforts on a simple, minimal leverage ratios. think about that report if you would. >> thank you. >> it has a ready begun to spin off

. >> no, we are not the one in charge of the occ. we are consolidated supervisor. we supervise the unregulated portion of the holding company and its role of consolidated activists but specific activities in the national bank, those 65 examiners you're talking about -- >> mr. curry, would you have a name of who is in charge of the derivativ derivatives? >> we operate supervision policy where we have a resident examiner in charge of the institution. that individual allocates responsibility for individuals who examine in particular areas of the bank. that can change over time. it can also be the result of someone being brought in. >> do you have a name of who was in charge at the time you were discussing earlier during that time of early april? >> not at the moment who was in charge of looking at the derivatives portfolio. >> mr. chairman, my point is that we have 65 people who are top people according to your testimony and we have this stuff going on. they are on site in order to pay attention and yet i hear from mr. alvarez that we're concerned with changes in the