Three Takeaways From the Jamie Dimon Congressional Hearing

There was plenty of political theater at the Dimon hearing, but what actually came of it?


Wednesday was a big day on Capitol Hill, as senators interrogated J.P. Morgan Chase CEO Jamie Dimon. At a Senate Banking Committee hearing, lawmakers questioned Dimon about the more than $2 billion his bank lost from transactions originating in the bank's Chief Investment Office.

There were protesters. There were accusations. There was massive press attention. But what actually came of today's hoopla? Below are the three key takeaways from the highly anticipated hearing.

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For those who miss the days of watching bank heads get pilloried over their roles in the financial crisis, today was another reason to bust out the popcorn. While the panel's cordial questioning was not the same sort of grilling that some bankers endured in the wake of the crisis, it was an opportunity for many of the senators to make a public show of their concern over risk in the financial industry.

"Congress put on a show to show they're paying attention to the issue. The purpose of a congressional hearing is for Congress to make itself look good," says James J. Angel, associate professor of finance at Georgetown University's McDonough School of Business.

It wasn't just senators that got the opportunity to grandstand—protesters launched loud verbal assaults on Dimon. One Code Pink activist called him a "crook" and a "predator," and a group called Occupy Our Homes chanted, "Stop foreclosures now!", as reported by CBS News.

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When the news of the trading losses broke, Dimon explained the situation to shareholders, and since then, the news media has had over a month to chew over the $2 billion figure. After all of this discussion, there was little room for news from today's hearing.

"Was there any new information revealed? Not really," says Angel.

But he does note that the hearing better explained the inner workings of J.P. Morgan.

"Dimon probably shed a little bit more light on what the CIO does within the bank. There was probably a little educational value to that," says Angel.

In his testimony, one of Dimon's first actions was to lay out exactly what caused the losses: risk management gone awry. When instructed to reduce risk in its synthetic credit portfolio, the CIO could have cut back on the size of those positions. But, as Dimon explained, that's not what it did.

"[I]nstead, starting in mid-January, it embarked on a complex strategy that entailed adding positions that it believed would offset the existing ones," he said. "This portfolio morphed into something that, rather than protect the Firm, created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it."

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More Ammo for Regulation Advocates

Dimon today acknowledged that the Volcker Rule—a provision in the Dodd-Frank financial regulation act that aims to limit banks' risky transactions—could have helped to prevent his firm's losses.

"It may very well have stopped parts of what this portfolio morphed into," Dimon said of the not-yet-implemented rule. "It's possible. I just don't know."

Those concerned about the potential for banks to harm the financial system via massive losses have seized upon the J.P. Morgan situation as fodder for their cause. But they may have little to show for their finger-pointing.

"I don't think it will have much direct impact on regulation," writes Kent Smetters, professor of business and public policy at the Wharton School at the University of Pennsylvania, in an E-mail to U.S. News. However, it may simply mean that opponents of new regulations have a harder road ahead.

Though the Volcker Rule is scheduled to go into effect in July, the agencies drafting the rule aren't expected to have completed their work by then. In February, Fed Chairman Ben Bernanke told Congress members that there were "a lot of very difficult issues to go through" on the complex regulation, and that he didn't know the exact date when it would be finished. The J.P. Morgan losses may hurt the case of those who would still seek to weaken that rule.