Dimon Challenged By House Lawmakers on Losses, TBTF

WASHINGTON — JPMorgan Chase chief executive Jamie Dimon faced a barrage of tough questions Tuesday from members of the House Financial Services Committee covering everything from his bank's massive trading loss to ongoing concerns that it is too big to manage.

It was a sharp contrast to last week's Senate Banking Committee appearance, which Dimon breezed through with few direct challenges.

After coming across as unflappable last week, Dimon appeared defensive at times on Tuesday during the roughly two hours of questioning, with both Democrats and Republicans yanking him off script.

Several lawmakers, for example, questioned whether JPMorgan is too big to manage — an idea that was barely mentioned during the Senate hearing.

"Would you say that the regulators are capable of sufficiently regulating a bank the size of JPMorgan?" asked Rep. Sean Duffy, R-WI. "Is it fair to say that a $2.3 trillion bank is too big to manage, too big to regulate, too big to control? It's just too complex?"

Still, Dimon made no major blunders, and barring further revelations, his bank appears to have weathered the worst of the political fallout from the trading debacle.

But House lawmakers appeared more willing to delve into substantive areas that went unexplored last week. Several, for instance, pressed Dimon to explain why his bank's losing trades originated at a subsidiary in London, which has been the site of numerous problems involving U.S. financial institutions in recent years.

Dimon struggled to answer the question, saying that JPMorgan operates in 100 countries, and speculating that the trading operation could have been in London because that's where key personnel were located.

When pressed on whether the regulatory regime in the United Kingdom, which for years touted itself as a light-touch regulator, was a factor, Dimon replied: "I don't think this activity was in London because regulatory activity is less in London. And most of what we do out of London is serving European companies."

Many Democrats on the panel used the forum as an opportunity to hammer both Republicans and Wall Street banks for their opposition to major parts of the 2010 financial reform law.

For example, Rep. Barney Frank, D-Mass., pressed Dimon on whether his firm continues to support House legislation — sponsored by Republican Rep. Scott Garrett and Democratic Rep. Jim Himes — that would exempt a category of swap transactions involving foreign affiliates of U.S. banks from certain Dodd-Frank Act requirements.

Earlier in the day, Gary Gensler, chairman of the Commodity Futures Trading Commission, testified that he believes if the Garrett-Himes bill had been law, the JPMorgan trades would have been outside the jurisdiction of U.S. derivatives regulations.

"Do you think that they are adequately regulated elsewhere?" Frank asked Dimon.

The JPMorgan chief said that in spite of the bank's recent losses, he continues to support the legislation.

"These trades are visible and regulated by the OCC and the Fed," he said, referring to the firm's bank regulators. "Sixty percent of these trades were, in fact, cleared. All of them were fully collateralized."

Dimon also argued that if JPMorgan operates under different rules than its foreign competitors, it is at a competitive disadvantage. "It's about the ability for us to compete," he said.

Later, Democratic Rep. Maxine Waters took issue with JPMorgan's lobbying efforts on behalf of the overseas derivatives bill.

"Lobbying is a constitutional right, and we have the right to have our voice heard," Dimon said.

Waters responded, "I'm not questioning your right to lobby. I'm questioning what's in the best interests of the American public."

Despite Dimon's continued support, the Garrett-Himes bill appears to be the first legislative casualty of the JPMorgan trading losses. The House Agriculture Committee has indefinitely postponed a vote on the measure.

At Tuesday's hearing, Himes did not speak, while Garrett mentioned the bill only in passing, declining the opportunity to defend it in detail.

For Dimon, some of the most uncomfortable questions came from the GOP's Duffy, who repeatedly wondered about the potential damage to the economy caused if JPMorgan were to fail.

Dimon insisted that his institution was not "too big to fail," but would be unwound by the Federal Deposit Insurance Corp. under new powers granted to it in the Dodd-Frank Act.

"We're not too big to fail," Dimon said. "I don't think there's any chance we're going to fail, but if we did, any losses the government would bear should go back, be charged to the banks."

Duffy followed up by asking Dimon to put a number on the potential fallout.

"Is it fair to say that JPMorgan could have losses of a half a trillion or a trillion dollars?" Duffy said.

Dimon responded: "Not unless the earth is hit by a moon."

But the Wisconsin Republican pressed on, forcing Dimon to agree that the $2 billion or more in losses that JPMorgan took as a result of its London trades were made with "dollars that were backed up by the FDIC."

"Why weren't you taking this excess deposits and investing those dollars here with American businesses, American consumers?" Duffy continued.

At another point in the hearing, Dimon dismissed calls from some members of Congress to resign his seat on the board of the Federal Reserve Bank of New York.

"The board basically sits around and talks about the economy," Dimon said, noting that Congress has mandated that members of the banking industry sit on regional Fed boards. "That information, I think, is put together and sent to Washington. It's more of an informational advisory group, and whatever the lawmakers write would be fine with me."

But he suggested kicking bankers off the regional Fed boards doesn't make sense.

"Personally, if I had a board, I'd want to hear from a lot of different types of people," he said. "It'd be funny to have — you know, talking about global markets and not have someone involved in the global markets at the table."

Some of the day's tensest exchanges were between Dimon and Rep. Brad Miller. Miller, D-N.C., questioned the JPMorgan chief about a news report that there was once a $20 million loss limit in place for positions held by the bank's Chief Investment Office, where the recent trading losses occurred.

Dimon was asked about that report at last week's Senate hearing, but said he was unaware of a $20 million loss limit.

"Have you inquired since then if there was such a limit and it was changed?" Miller asked.

"No," Dimon responded tersely.

"You have not asked within your organization?" Miller followed up.

"I think it referred to something back in '07 or '08, so I did not ask, no," Dimon said.

At last week's hearing, Dimon said there will likely be claw-backs in pay for the traders and executives responsible for the losses. On Tuesday, Democratic Rep. Barney Frank asked the JPMorgan chief whether his own pay would be part of the claw-back pool.

"My compensation is 100% up to my board," Dimon responded. "They will do what they see is appropriate. I can't tell my board what to do."

Frank, D-Mass., was one of several lawmakers to express concern about the potential ramifications of a large trading loss at a bank that is less well capitalized than JPMorgan.

Referring to Dimon's assertion that JPMorgan has a "fortress balance sheet," Frank quipped that regulations also need to cover banks whose balance sheets consist of "a couple of chain links, maybe a picket fence or two."