JPMorgan Chase CEO Jamie Dimon assured lawmakers that recent trading losses at the firm, which totaled over $2 billion, were an isolated incident that underscores the need to “never, ever get complacent” with regard to risk management.
Appearing June 13, 2012 before the Senate Banking Committee (webcast), Dimon acknowledged that the incident came about in part because the firm’s Chief Investment Office in London had “done so well for so long,” which created “a little bit of complacency and overconfidence.” Dimon noted that the CIO investment strategy was poorly conceived and vetted, and “violated common sense,” while traders did not have adequate understanding of the risks involved. Yet despite the losses, Dimon stressed that JPMorgan’s “fortress balance sheet” remains intact, and that capital ratios are extremely strong.
In response to questions, Dimon emphasized the need to give financial regulators “realistic objectives,” and that “realistically I don’t think they could actually stop something like this (JPMorgan’s trading losses) from happening, it’s purely management’s mistake.”
Turning to the Volcker Rule, Dimon told senators that “I think it would be very hard to make a bright line distinction between proprietary trading and hedging because you can look at almost anything we do and call it one or the other.” Dimon said that while he understands the intent of the rule, “I think the devil is going to be in the details.”
Asked whether the Volcker Rule could have impacted JPMorgan’s trading losses if it had already been implemented, Dimon replied, “it may very well have stopped parts of what this portfolio morphed into.” During additional questioning, Dimon described the Volcker Rule as both “unnecessary” and “too confusing.”
Prior to the hearing, Sen. Kay R. Hagan, D-N.C., pointed to a recent Federal Reserve Board report showing that between 2007-2010 U.S. families on average lost 39 percent of their wealth, noting “The financial crisis and its effect on the broader economy played a significant role in causing this drop.” She added, “Fortunately, in this instance, the loss occurred at a bank that is well-capitalized, and the losses did not spill into the broader economy.”