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November 21, 2012

June 13, 2012 – Senate Banking Committee hearing entitled "A Breakdown in Risk Management at JP Morgan Chace."

Chairman Johnson read an opening statement recapping the Committee’s efforts to determine if the breakdown in risk management constituted a system risk and what would be the effect of the implementation of the Volcker Rule on the institution. Ranking Members Shelby stressed the importance of adequate capital levels for any financial institution.

Jamie Dimon, President, Chairman and CEO of JP Morgan, was the only witness. He blamed a faulty new investment model, poor communications and oversight for the investment losses. In order for his firm to be a in better position to deal with the Basle III capital standards, JP Morgan sought to modify their portfolio and, in January of 2012, employed a risky strategy based on an untried model to offset existing positions. Rather than reducing risk by winding down positions, JP Morgan actually increased the size of their investment portfolio in an unsuccessful effort to offset the positions they had on their books. Only when Dimon and senior management realized the early losses were real and their investment model was seriously flawed, did they take necessary steps to reverse their losses.

Jamie Dimon did a masterful job defining the purpose of the hearing. By dismissing public reports of what happened as untrue and hiding behind the cloak of propriety information, Dimon controlled the direction of the hearing. In sum, the hearing became a forum for JP Morgan’s view of financial reform rather than an effort to uncover what was behind massive losses in the portfolio of the largest U.S. bank.

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