WASHINGTON — Comptroller Thomas Curry will tell Congress on Wednesday that his agency is in the process of identifying whether it fell down in its supervision of JPMorgan Chase, as well as whether the bank disclosed enough information to let its examiners understand the risks that led to massive trading losses at the bank.

In Curry's written testimony to the Senate Banking Committee, the Office of the Comptroller of the Currency offers its most detailed comments to date about the trading losses, which grew out of a portfolio that JPMorgan built in 2007 and 2008 to partially offset potential credit losses in a stressed global economy. The bank's strategy was reported regularly to the OCC, according to the testimony.

"In late 2011 and early 2012, bank management revised its strategy and decided to offset it original position and reduce the amount of stress loss protection," Curry says in written testimony. "The instruments chosen by the bank to execute the strategy were not identical to the instruments used in the original position, which introduced basis, liquidity, and other risks."

"As the new strategy was executed in the first quarter, actual performance deviated from expectations, and resulted in substantial losses in the second quarter. Whether risk management controls, procedures, and reports were properly structured, reviewed, approved, and acted upon in the execution of this strategy is another focus of our ongoing examination," Curry adds.

The comptroller's testimony states that OCC examiners met with J.P. Morgan's management to discuss the current state of the bank's position sometime in April 2012. It is not clear from the testimony whether this meeting occurred before or after the initial press reports on JP Morgan's large and vulnerable position, which emerged around April 5.

"OCC examiners directed the bank to provide additional details regarding the transactions, their scope, and risk," Curry states in the testimony. "Our examiners were in the process of evaluating the bank's current position and strategy when, at the end of April and during the first days of May, the value of the position deteriorated rapidly."

The testimony states that since April, the OCC has met daily with J.P. Morgan's management.

In response to the losses, estimates of which began at $2 billion but have since been rising, the OCC is undertaking a two-part review of its supervision and response, according to the testimony.

"The first component is focused on evaluating the adequacy of current risk controls and risk governance at the bank, informed by their application to the positions at issue," Curry says. "The second component evaluates the lessons learned from this episode that could enhance risk control and risk management processes at this and other banks and improve OCC supervisory approaches."

As part of its effort to learn from the episode, Curry says that he agency will explore whether the quality and extent of information that was made available to the agency was sufficient to allow it to understand the risks the bank was taking.

"We will also determine what, in retrospect, the OCC could have done differently, and how to ensure that the risk management processes of this bank — and others — are effective," Curry states.

While the losses affect J.P. Morgan's earnings, they do not present a solvency issue or threaten the broader financial system, Curry says.

He says that the OCC is not drawing any conclusions about whether the J.P. Morgan trades would be subject to the Volcker Rule. There have been conflicting press reports about what OCC officials have been saying behind closed doors on this issue.

"It is premature to reach any conclusion based upon the facts and information as they currently exist," Curry says.

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