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Banker's mea culpa

DimonA contrite Jamie Dimon testified before the Senate Banking Committee Wednesday. While the JP Morgan CEO acknowledged the company's faults in the bank's $2 billion trading loss, he didn't back down from his anti-regulation stance. (You can see his testimony here).

A Bloomberg article by Christine Harper said his testimony highlights how complex and intertwined with government banking has become. Ironically, author Ron Chernow said in an interview, government programs such as FDIC insurance are what make banks feel safe enough to make big gambles in the first place:

Testimony“You can just imagine in this environment if there wasn’t deposit insurance how much money would be left in these banks,” Chernow said in a telephone interview. “The tradeoff was that in exchange for federally insured deposits that bankers would behave in a particularly cautious and responsible manner.”

JPMorgan, now the biggest U.S. bank with $2.3 trillion of assets, grew during the 2008 financial crisis when it acquired Washington Mutual Inc. and Bear Stearns Cos. with the federal government’s support.

“It was quite counterintuitive that, to this day, the government’s response to the crisis was to create yet bigger and more complicated institutions,” Chernow said. “In addition to the deposit insurance and the regulated nature, another reason why the government has a special stake in this firm is because it was partly a creation of the government during the financial crisis.”

Plenty of folks, such as the New York Times' editorial board, thought senators went too easy on him: DimonSmiles

In brief, he didn’t say much that everyone didn’t already know — and he didn’t give an inch on his fierce opposition to the tough financial regulations needed to ensure that banks’ risky behavior does not again threaten to bring down the financial system. The senators did not press him nearly hard enough. Some Republicans even praised Mr. Dimon for his bank leadership and let him critique proposed financial regulations, while one Democrat sought his advice on how to fix the deficit.

Oregon Senator Jeff Merkley probably went at him the hardest. He released this statement after the hearing:

“While it wasn’t his intention, Jamie Dimon today made the case for a strong Volcker Rule. I was pleased to hear him say that he doesn’t want to be in the hedge fund business and that these proprietary trades should not have been made. These large gambling losses are exactly why we need a strong loophole-free Volcker firewall that separates traditional banking and hedge-fund style trading. We cannot continue to allow massive proprietary trades disguised as risk management, hedging, or market-making.”

Here is a bit of Dimon's testimony:

 

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Banks | Regulation
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