NYT OPINION // EDITORIAL
Jamie Dimon on the Hill
Published: June 14, 2012
Jamie Dimon, the head of JPMorgan Chase, told the Senate Banking Committee on Wednesday that he had been "dead wrong" to dismiss early news reports of his bank’s reckless trading and that he was "sorry" for the resulting losses, variously estimated at $2 billion to $5 billion, and counting. He even ventured that too-big-to-fail banks have "negatives," including "you know, greed, arrogance, hubris, lack of attention to detail."
In brief, he didn’t say much that everyone didn’t already know – and he didn’t give an inch on his fierce opposition to the tough financial regulations needed to ensure that banks’ risky behavior does not again threaten to bring down the financial system. The senators did not press him nearly hard enough. Some Republicans even praised Mr. Dimon for his bank leadership and let him critique proposed financial regulations, while one Democrat sought his advice on how to fix the deficit.
A month after the trading losses were first revealed, Mr. Dimon has yet to offer a thorough explanation for what happened. One of the big questions is whether the loser trades were really, as Mr. Dimon claims, hedges intended to protect against potential losses on other of the bank’s positions, or proprietary trades – speculative bets – placed for profit.
Banks would be allowed to hedge but barred from pure speculation under the Volcker Rule, one of the Dodd-Frank reforms intended to curtail reckless trading. Mr. Dimon, who has been the most outspoken critic of the rule, said that his bank’s trades started out as legitimate hedges, but even his nonexplanation of events indicates otherwise. In a crisis, like a global credit crunch, he said, the complex derivatives at the heart of the bank’s bad trades were supposed to make a lot of money. So much for guarding against losses on underlying investments.
There were no questions at the hearing about Mr. Dimon’s efforts – and those of other banks – to win an exemption from the Dodd-Frank rules for derivative trades made through foreign branches, affiliates or subsidiaries. The Chase trades that went bad were conducted in London, as were the bad bets by American International Group in the run-up to the financial crisis.
Regulators, notably Gary Gensler, the head of the Commodity Futures Trading Commission, have been adamant that new rules – on transparency, monitoring, speculation limits, reporting, and business conduct standards – must apply to all trades made or backed by federally insured banks, no matter where the transactions occur.
But with the banks still pushing back hard, he needs full-throated support from Capitol Hill to persuade the rest of his commission and other regulators to do what is needed. Unfortunately, not a single Banking Committee member pressed Mr. Dimon on the issue.
Why is that? Maybe their staffs did not prep them on the complexities. Another possible explanation is that, even now, senators from both parties are still in thrall to Mr. Dimon and the deep pockets of the banking industry.
Some Democratic senators did challenge Mr. Dimon, notably Robert Menendez of New Jersey and Jeff Merkley of Oregon. But until more lawmakers commit to the toughest possible rules, the nation’s financial system will remain vulnerable to all of that "greed, arrogance, hubris, lack of attention to detail" that Mr. Dimon acknowledges, even as he resists the rules that would curb it.