May 14, 2012

Senate Banking Committee to Hold Hearings on JPMorgan Loss, Other Key Issues

Senate Banking Committee hearings ‘over the next few weeks’ will cover JPMorgan losses, Sen. Johnson says

Sen. Bob Corker, R-Tenn. (Photo: AP) Sen. Bob Corker, R-Tenn. (Photo: AP)

A day after JPMorgan Chase announced that it would suffer $2 billion in surprise losses incurred by the bank’s chief investment office in London, Sen. Bob Corker, R-Tenn., a member of the Senate Banking Committee, called on Sen. Tim Johnson, the committee’s chairman, to hold a hearing on the issue.

Johnson responded on Monday that his committee plans to hold "over the next few weeks" a series of hearings that will cover various issues, including financial stability issues like the JPMorgan losses, money-market funds and the economic situation in Europe, as well as oversight hearings with key financial regulators from the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Federal Reserve on the implementation of Dodd-Frank reform.

The hearings will also delve into derivatives oversight, with additional testimony from officials from the FDIC, CFPB and OCC as well as the Treasury Department on enhanced bank supervision. 

In a May 11 letter to Johnson, D-S.D., Corker said the committee should hold a hearing “as expeditiously as possible” in order to get answers to the following questions:

  1. Are we confident that taxpayers are fully protected from losses at major financial institutions?
  2. Were these bona fide hedging transactions, or were these poorly managed proprietary trades? And what precisely is the distinction?

Corker told Johnson that he had been “vocal in my belief that we need a vibrant capital market for debt and equity securities and about the need for balance in ensuring that we have a financial system that can meet the needs of a 21st century economy. That said, clearly the losses posted by JPMorgan are significant, and as policy makers we should understand in detail what has transpired.”

Johnson said in a statement the same day that JPMorgan’s $2 billion trading loss “confirms two things”: First, the good news, he said, was that “market reaction so far shows that the financial system and the bank itself are stronger today than in 2008, thanks to improvements adopted after the financial crisis including the [Dodd-Frank] Wall Street Reform Act.”

Second, he said, “the fact that this can happen at a bank with a solid reputation like JPMorgan is evidence that our banking regulators must remain vigilant, and why opponents of Wall Street reform must not be allowed to gut important protections for the financial system and taxpayers.”

No doubt the JPMorgan losses will also be brought up during a hearing to be held Wednesday by the House Financial Services Committee’s Subcommittee on Financial Institutions and Consumer Credit titled “The Impact of the Dodd-Frank Act: What It Means to be a Systemically Important Financial Institution.”

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