J. Scott Applewhite / AP
JPMorgan Chase CEO Jamie Dimon, head of the largest bank in the United States, takes his seat on Capitol Hill in Washington, Wednesday, June 13, 2012, prior to testifying before the Senate Banking Committee about how his company recently lost more than $2 billion on risky trades.
With election season heating up, both Democrats and Republicans scored political messaging points in Wednesday morning’s Senate Banking Committee hearing with JP Morgan Chase CEO Jamie Dimon. The hearing explored the firm’s more than $2 billion loss in a London-based hedging strategy that went awry, setting up a sometimes contentious exchange between the lawmakers and the CEO.
The JP Morgan loss prompted fears in Congress that similar losses on a far bigger scale might spur calls for another taxpayer bailout of financial firms -- which would be both a political and fiscal nightmare.
Democrats made their case for more vigilant regulation of financial institutions. But Sen. Sherrod Brown, D-Ohio, who is up for re-election this November, also made the point that he doesn’t see Dimon as the enemy: “You have some 19,000 employees in the Columbus area who are also my constituents, so we have a mutual interest in your institution running safely and soundly.”
But those jobs might have been put at risk by the failed hedging strategy, Brown said. “I don’t want to see consumer lenders in Columbus losing their jobs because cowboys in London made too many risky bets.”
On their side, Republicans contended that the 2010 Dodd-Frank law wasn’t the solution and that even if fully implemented, it would not have prevented the JP Morgan loss.
Dimon himself accomplished the mission of appearing contrite, perhaps alleviating some of the congressional frustration over the botched hedging strategy. He admitted to “complacency” about the culpable JP Morgan trading unit and added the lesson of the episode was, “Never, ever get complacent in risk; challenge everything, make sure people on the risk committee are always asking questions.”
But Dimon also helped Republicans make their case that it isn’t clear that Dodd-Frank has not made the financial system any safer. “I don’t know,” he replied, when Sen. Bob Corker, R-Tenn. asked him whether Dodd-Frank had made the system less dangerous.
Time Magazine's Rana Foroohar recaps Jamie Dimon's testimony.
And Dimon was unafraid to shove back a bit at panel members -- complaining at one point that those who wrote the Dodd-Frank law hadn’t brought him, and other financial sector CEOs, into a room in 2010 to discuss what elements ought to go into the law. “We never actually sat down, Republicans Democrats, businesses, and had a real detailed conversation about what went wrong (in 2008) and what needs to be fixed,” Dimon lamented.
And at a few points he hinted at a bit of contempt for Congress, as when Sen. Jerry Moran, R- Kan., asked him about his comment that arrogance and hubris were common in large financial institutions. “They can occur in small organizations too,” Dimon said.
“You aren’t talking about the Senate, surely?” joked Moran.
“Definitely not, not now,” Dimon replied.
Sen. Jim DeMint, R- S.C., told Dimon that Congress was in no position to criticize his firm’s balance sheet: “You appear to be in much better fiscal shape than we are as a country.” He added, “A lot of us are frustrated bank managers and want to manage your business for you … we’re not capable of doing that for what we’ve been given to manage.”
Perhaps the most provocative point was made by Brown who said the size and complexity of JP Morgan -- and regulators’ struggles to comprehend what the firm was doing “demonstrates to me that ‘too big to fail’ banks are frankly too big to manage and too big to regulate.”
Brown has offered a bill that would go beyond Dodd-Frank by imposing a 10 percent limit on any bank's share of the total amount of deposits of all insured banks in the United States and a 10 percent limit on the liabilities that any one financial company can take on, relative to the nation’s financial sector.
But another Democrat up for re-election this November, Sen. Jon Tester of Montana, dissented from Brown on that point. “Is it (JP Morgan) too big? I don’t know,” Tester said in an interview after the hearing. He pointed out that Dimon had testified that 100 regulators are at JP Morgan at any one time. “I can’t make a prediction whether they’re too big to manage. I think I had that same question quite frankly about (the now-bankrupt) MF Global whose crime was much more clear.”
If the question is whether Morgan is so big and politically powerful “that it needs to be broke up,” as Tester put it, “I’m not sure that it needs to happen.”
Tester used his five minutes of interrogation time to assail Dimon for JP Morgan’s tardiness in returning funds to farmers and ranchers from MF Global which were on deposit at his company.
But like DeMint, Tester seemed to acknowledge that perhaps senators are not fully equipped to understand all of what goes on in the world of complex financial institutions: “you guys know the industry better than anybody setting (sitting) up here.”
But Tester said after the hearing that in his state the really crucial issue is not under-regulation but over-regulation – of small community banks.
“We don’t have these big banks in Montana. What we’ve got is a ton of small banks and credit unions that really are the lifeblood for capital for small businesses,” he explained. “There is a real problem -- I think it’s getting better, but the jury is still out -- on how these community banks are being regulated. Part of it is our own problem: we brought the regulators in and beat the hell out of them during the financial meltdown because they didn’t do their job.”
But now “they’ve clamped down” and “if you clamp down too much on these banks, it’s going to stop the money from going out … .”
Tester said, “We need to make sure that the regulators apply common-sense regulation” but “not so much that it freezes up the financial markets and I think that’s what’s happened in Montana and that’s the concern.”