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Hearing of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee - Examining Bank Supervision and Risk Management in Light of JPMorgan Chase's Trading Loss

Hearing

By:
Date:
Location: Washington, DC

Congresswoman Shelley Moore Capito, R-W.Va., Chairman of the Subcommittee on Financial Institutions and Consumer Credit, delivered the following opening remarks at today's full committeehearing entitled "Examining Bank Supervision and Risk Management in Light of JPMorgan Chase's Trading Loss"

Remarks as prepared for delivery:

I thank the Chairman for yielding me time and for calling this important hearing.

We are here this morning to learn more about risk management lapses at JPMorgan that led to over $2 billion in losses for the firm. Normally the losses of a private company should not necessitate Congressional hearings. However, the Dodd-Frank Act failed to end "Too-Big-to-Fail", in fact it codified it into law, and therefore institutions like JPMorgan are still viewed by market participants as being systemically important firms that may be bailed out by the taxpayers in times of extreme duress. Although no taxpayer dollars were at risk in this case, as long as too-big-to-fail exists in our market, this committee has to be vigilant in oversight to ensure regulators and private firms are employing sufficient risk management models.

Although JPMorgan's trades resulted in a $2 billion loss for the firm, this loss did not pose a threat to the system or the firm because JPMorgan is a well capitalized financial firm. As of March 31, 2012 they were holding $128 billion of Tier 1 capital. This raises important questions. Could a less well capitalized firm survive a loss of this magnitude? Are the current enhanced capital requirements sufficient to prevent a too-big-to-fail firm from being bailed out by the taxpayers? Are increased capital requirements a better tool to ensure a safe and sound financial system? Is there transparency in the system?

Finally, we need to thoroughly examine the effectiveness of supervision by federal financial regulators for firms the size of JPMorgan. One of the failures of the regulatory structure prior to the financial crisis of 2008 was that there were too many silos in the system; yet four years later JPMorgan still has no fewer than five different federal agencies sharing responsibility for oversight of the firm. We need more information about the level of information sharing amongst the agencies and how five agencies with a combined 100 or more personnel supervising JPMorgan at the time did not know about the substantial size and risk of these trades.

I thank the Chairman for holding this hearing and yield the balance of my time.


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