June 18, 2024

DealBook: Lawmakers Clash on Regulation at JPMorgan Hearing

Jamie Dimon and his regulators visited Capitol Hill on Tuesday for another round of scrutiny for a recent multibillion-dollar trading loss at JPMorgan Chase.

But before Mr. Dimon faced the firing line, lawmakers sparred with each other.

“I am a little surprised by all of the hemming and hawing by my colleagues on the other side of aisle over a private business losing private money when the federal government continues to lose billions of taxpayer dollars every day,” Representative Scott Garrett, Republican of New Jersey, said in an opening statement for the hearing before the House Financial Services Committee.

Michael Capuano, Democrat of Massachusetts, hurled blame at Republicans for introducing legislation to weaken new rules for Wall Street. In a tirade against Republican lawmakers, he argued that JPMorgan’s trading blowup raises broader questions about the safety of Wall Street.

“I’m not outraged by this particular loss,” he said, pushing regulators to say whether other big banks could take on similarly risky bets.

The hearing on Tuesday was the final in a string of inquiries planned for JPMorgan’s loss, which has grown to at least $3 billion. It was also the second opportunity for lawmakers to quiz Mr. Dimon on the losses, which were tied to a soured bet on credit derivatives.

A panel of regulators served as the opening act. In the opening panel, the House committee heard testimony from officials at five federal agencies, including the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and Commodity Futures Trading Commission.

But the comptroller of the currency, Thomas J. Curry, and the general counsel of the Federal Reserve, Scott Alvarez, faced the toughest inquiries. The regulators are under fire for failing to catch the risky trades.

Under questioning from Representative Randy Neugebauer, Republican of Texas, each of the five regulators acknowledged that their agencies were unaware of the losses until media reports emerged in early April.

“I’m wondering how this was missed,” said Representative Shelley Moore Capito, Republican of West Virginia. “Even with the matrix of communication, no one was catching it. Is the communication really working?”

In reply, Mr. Curry explained that “we were initially relying on the information available to the bank.”

Mr. Alzarez concurred. “We have to rely on information we get from the organization itself,” he said. “If that’s flawed,” he added, then regulators will have a problem.

In questioning, the House panel focused mainly a series of new rules that would rein in Wall Street risk-taking. The hearing often devolved into partisan squabbles over the rules, which stem from the Dodd-Frank financial regulatory law.

Democrats who support the overhaul highlighted how new oversight would rein in the risky derivatives trading that prompted the blowup at JPMorgan.

“The question is: Does this not argue against the proposal to deregulate derivatives?” said Representative Barney Frank, the Massachusetts Democrat who co-authored the law. “To me, this is not a hearing about JPMorgan Chase. They are an example of the larger issues.”

While Mr. Dimon has argued that the trading losses have only nicked the bank’s “fortress balance sheet,” Mr. Frank noted that other banks were not healthy. “Some have a picket fence balance sheet or a chain link balance sheet,” said Mr. Frank, the ranking Democrat on the committee.

Mr. Frank and Republicans traded barbs over Dodd-Frank throughout the hearing, with some Republicans blaming the law for allowing trading losses like that at JPMorgan.

“You can see we’re not ready to break into a ‘Kumbaya’,” Spencer Bachus, a Texas Republican and the committee’s chairman, told the regulators in a moment of levity. “Welcome to the serenity of the financial services committee.”

Article source: http://dealbook.nytimes.com/2012/06/19/lawmakers-clash-on-regulation-at-jpmorgan-hearing/?partner=rss&emc=rss

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