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5 Things House Lawmakers Should Avoid at the Dimon Hearing

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WASHINGTON — The reviews of the Senate Banking Committee's performance at last week's hearing with Jamie Dimon were unkind, to say the least.

Pundit after pundit blasted the panel for kow-towing to the chief executive of JPMorgan Chase.

If House Financial Services Committee members, who will hear from Dimon on Tuesday, want to avoid a similar fate, they can do so by not making the following mistakes:

5. Don't tell Dimon how awesome he is — he already knows

One of the most mocked parts of last week's hearing was the effusive praise heaped on a man who had just admitted he had made a mistake that cost his company more than $2 billion. Sen. Bob Corker, R-Tenn., called Dimon "one of the best CEOs in the country," and several other members went out of their way to talk about how well-managed JPMorgan is.

Maybe they wanted to buck up Dimon, who started off the hearing by apologizing and later acknowledged the "buck stops with me" in admitting fault for not stopping the risky trades. But Dimon doesn't need a pep talk, least of all from members of the U.S. Congress. If last week was any indication, his self-confidence and ego remain undiminished by the trading losses.

4. Don't solicit JPM's business

Sen. Mike Johanns, R-Nebraska, left observers scratching their heads by appearing to ask Dimon to expand into his state. "You're not located in my state and I doubt that you're probably considering locating in my state, although it'd be a great place for you to do business," Johanns said.

Whether that was Johanns' actual intent or not, I don't know. But House members should avoid any suggestion that they are using the hearing to drum up business for their states.

3. Don't suggest over-regulation is to blame

I recognize that Republicans do not support the Dodd-Frank Act, but it's wrong, and more than a little weird, to suggest overregulation caused JPMorgan to lose $2 billion. Sen. Mike Crapo, R-Idaho, kicked this theme off by raising concerns about "regulators running our private sector institutions." Several other GOP senators then picked up that theme, worrying about the effect of Dodd-Frank on JPMorgan and hinting that regulatory burden helped cause the errant trades.

Dimon, for his part, wasn't biting. He seemed more than a little perplexed that anyone would seriously make the argument—for good reason. Whether regulators should have caught the disastrous trades before they happened is a reasonable question. But no analysis of what occurred in JPMorgan's London office would indicate that the burden of regulatory reform somehow caused the bank's Chief Investment Office to act as it did.

2. Don't take too long to get to the question

Sen. Sherrod Brown had one of the best questions of the hearing, asking if the trading incident signaled that JPMorgan was "too big to manage." The Ohio Democrat made a fairly convincing case, detailing JPMorgan's $2.3 trillion of assets, as well as its 559 subsidiaries in 37 countries.

Unfortunately for Brown—and everyone watching the hearing—Dimon never had to answer the question. Brown had already used up most of his allotted 5 minutes by focusing on other issues.

Here's hoping some House lawmaker asks it again—and leaves plenty of time for Dimon to respond.

1. Don't ask Dimon for advice

Far and away, the most widely criticized part of last week's hearing was lawmakers' repeated questions asking Dimon how the regulatory system should work. Sen. Jim DeMint, R-S.C., asked Dimon what Congress should do "to allow the industry to operate better," while Sen. Charles Schumer, D-N.Y., wondered if Dimon could evaluate the health of other big banks. Other senators questioned whether Dimon thought community banks would be harmed by Dodd-Frank.

The most ironic questions, however, were about implementation of the Volcker Rule, which is meant to stop proprietary trading. A key question remains whether JPMorgan was really hedging, as it claims, or if it was in fact making large, risky bets through proprietary trading.

Rather than focusing on that issue, however, many senators asked him to opine on the value of the Volcker Rule in the first place.

"Is there a true, real version of the Volcker Rule that you think makes sense and should be implemented?" asked Sen. David Vitter, R-Louisiana.

As Rolling Stone's Matt Taibbi wrote on his blog, this line of inquiry was just bizarre.

"Can you imagine senators asking the captain of the Exxon Valdez what his ideas are for new shipping safety regulations — and taking him seriously when he says he doesn't think they're a good idea?" Taibbi wrote.

JPMorgan, like any other bank or interested party, has the right to offer its views on policy debates, but a hearing to probe how and why the bank lost so much money so quickly is not the time to seek them.

Rob Blackwell is American Banker's Washington Bureau Chief.

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Comments (4)
This has to be one of the worst pieces I have seen in the American banker! I believe it shows a lack of understanding of banking, the senate hearing scope and the importance of Jpm's loss. This never should have been published.
Posted by tkbrown | Monday, June 18 2012 at 3:53PM ET
It's always difficult to respond to these kind of comments, which essentially boil down to, "This sucked." But I'll try anyway. I actually think it was the Senate Banking Committee members, not me, that showed a "lack of understanding" about the scope of their hearing. They were far, far too interested in throwing softballs at Dimon instead of focusing on what was behind the loss and how to prevent another such problem.
Lawmakers seemed, in a word, captured. But maybe you like them that way?
--Rob Blackwell, Washington bureau chief, American Banker
Posted by rblackwe | Monday, June 18 2012 at 4:20PM ET
Mr. Blackwell,

I must take issue with the other commentor. $JPM's loss is important, very important. Not because I believe there is a TBTF issue, but it might point out exactly where the Reg system is most vulnerable. For a short time I dealt with a small number of member of Congress for the Mutual Savings Bank industry. Obviously I was of no real stature (only 5'10" - sorry but I couldn't resist), but the Senators with whom I dealt on the Banking Committee were totally committed to insuring that the legislation would serve the stated purpose.

Here we have Senators pandering to a very large Bank's President. Yes, he is important, but it was under his watch the trading losses occurred and no one outside, and probably inside JPM know the real extent of the loss. Depending on the puts, call, options and other hedges, the loss may not be known for a while - dates of uncertain duration. But, $5B-$7.5B would not be a surprising amount. Dismaying yes but no surprise.

We need some way to stop the gambling from continuing. Even the Football books have better controls than JPM does apparently. My view is that we need a Volker,Dodd-Frank combination bill coupled with an SEC and OCC that will enforce those laws (if passed) and the laws already on the books.

Richard Isacoff
rii@isacofflaw.com
Posted by riisacoff | Monday, June 18 2012 at 8:51PM ET
Rob:

I enjoyed the piece and was as equally stunned at the highlights/lowlights of the Senate's questions and commentary...too much sucking up and asking for advice. How we regulate banks is above my pay grade, but it has to be a momumental challenge for government to understand complex banking and staff accordingly. Looking forward to your observations after the house hearing.

Scott Mills
William Mills Agency
Posted by wmapr | Tuesday, June 19 2012 at 10:09AM ET
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