The highly vaunted hearing is almost upon us.
Tomorrow, Jamie Dimon, CEO of JPMorgan Chase & Co. will be the sole witness at a Senate Banking Committee hearing, “A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?”
It will be a fascinating meeting to watch.
Dimon is likely to be given a tough time by lawmakers on the Democratic side, who have been on the receiving end of Dimon’s criticisms of regulation. Yet at the same time, Republicans are going to be in no mood to pat Dimon on the back. They have spent the last few years supporting bankers’ calls to limit what they consider to be regulatory overreach. Politically, this $2 billion loss is irritating and verges on embarrassing. While Republicans are fighting back calls to extend the Volcker Rule to cover complex “macro-hedges,” they will most certainly need to be seen to be tough on Dimon.
But what questions should the senators ask? Bloomberg Government analysts have come up with 10 crucial questions that we would ask Dimon, if we were sitting on the dais. Here are three, with the rest available on Bloomberg Government:
1. Should the Volcker Rule, which bans banks entering into proprietary trading, be extended to macro-hedging activity? If not, please explain why the loss at JPMorgan is specific to your company’s risk management procedures and isn’t going to be inevitably repeated at other banks?
2. Has the loss led you to change your mind about some aspects of regulation? For instance, contrary to what JPMorgan’s chief risk officer has previously said in testimony, does the bank now accept that the capital surcharge for systemically important financial institutions is not only reasonable but necessary?
3. Will you be clawing back bonuses from those that were responsible for the loss? Did the compensation structure at your bank set up dangerous and risky incentives? And was the trader involved in this ‘hedge’ being paid as if he were a proprietary trader?
Good luck, Mr.Dimon. We’ll be watching.