Chairman Randy Neugebauer
Opening Statement

Full Committee Hearing
“Examining Bank Supervision and Risk Management in Light of JPMorgan Chase’s Trading Loss”
June 19, 2012

As Prepared for Delivery

Mr. Chairman, thank you for holding this hearing and giving us a chance to examine the substantial losses J.P. Morgan incurred this April. 

This Committee has a critical responsibility—we must ensure that our financial exchanges, our banking system, and our housing markets are functioning smoothly and within prescribed laws and regulations. 

We are not, however, charged with dictating the operations of individual companies.

Markets are not risk-free, and with every financial gain, there is a chance of loss.  What is important is that those who take risks to enjoy the payoffs must also suffer the consequences of their loss.  Taxpayers should not be on the hook for private losses. 

In this case, that was true.  JP Morgan and its shareholders—not clients and taxpayers—are paying for this mistake.

The other silver lining of this loss is that JP Morgan proved strong enough to weather this storm.  Because it had large capital reserves on hand, it could easily withstand a loss this size.

However, the events leading up to this loss do raise some troubling questions, and that’s why I’m glad Chairman Bachus has called this hearing.

For instance, between the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, there were more than 100 regulators within JP Morgan.  Yet not one of them knew about the aggressive trading practices taking place until the media broke the story.

For me, this is an eerily familiar story.  Five years ago, we had 12 thousand regulators who missed the subprime mortgage crisis, the Madoff fraud, and the Stanford scheme. 

So what did we do?  We nearly doubled the number of regulators under Dodd-Frank.  In Texas, we have an expression for a hound that’s not much use out in the field.  We say, “that dog won’t hunt.”  You can’t bring down game by buying more dogs from the same litter and expecting them to somehow develop that instinct. 

Right now, I don’t think the problem is that we don’t have enough regulators.  The problem is that the regulators aren’t doing their jobs. They don’t hunt. 

Today, I want to understand why when newspapers were calling attention to the increasingly risky bets from the so-called London Whale, the regulators weren’t looking at this more aggressively. 

JP Morgan’s CEO made his now infamous dismissal of the initial reports of risky trades, calling them a tempest in a teapot.  We know now that that statement was badly misinformed.  Why wasn’t there more regulatory scrutiny of those comments before the trading losses occurred?

This hearing will help establish not only what Mr. Dimon knew, but what he should have known, before he made that comment.  Moreover, it will establish what the regulators should have known beforehand.

When Dodd-Frank was passed, it sought to provide security in our markets by putting them in chains. That’s not what we need.  We need to shine a light on the activities at firms like JP Morgan and within our regulatory agencies.  More than any artificial constraints, transparency and disclosure can ensure that our markets are operating efficiently and without risk to taxpayers.

I hope that this hearing helps demonstrate that our markets will benefit more from transparency and accountability than they will from an influx of rules and regulations.

Lastly, while this $2 billion loss was shocking in its magnitude, I’d like to put it in perspective.  Fannie and Freddie lost $170 billion in taxpayer money when they imploded.   Our government wasted $500 million in a failed investment in Solyndra.  And every day, our deficit grows exponentially, draining taxpayer dollars.  During the five hours I expect this hearing to last, our deficit will grow by about $1 billion. 

While it’s important to shine a light on what happened at JP Morgan, let’s keep our eye on the ball.  Before we criticize a private company for mismanaging money, let’s get our own house in order.  Let’s stop wasting taxpayer money on failed regulations and more government bureaucracy. 

Thank you, Mr. Chairman.

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