By Brandon Moseley
Alabama Political Reporter
Wednesday, U.S. Senator Richard Shelby, (R) from Alabama, released a written statement with remarks made by the Senator about the situation at JP Morgan Chase (one of the nation’s largest banks). The Chief Executive Officer and President of JP Morgan Chase, Mr. Jamie Dimon testified before the Senate Committee on Banking, Housing, and Urban Affairs where Sen. Shelby is the ranking Republican member.
Sen. Shelby said, “Mr. Dimon is here today because JPMorgan Chase lost more than two billion dollars on derivatives trades. “Normally it is not and should not be the role of Congress to second-guess decisions by private sector businesses. However, because the Federal government guarantees bank deposits, this Committee has a responsibility to ensure that banks do not unnecessarily put taxpayers at risk. Congress has, in large part, delegated the responsibility of oversight to our financial regulators. They are supposed to be monitoring the activities of banks like JP Morgan Chase to ensure that they operate in a safe and sound manner. As we learned from the most recent financial crisis and this particular incident, regulators do not always meet our expectations.”
Sen. Shelby continued, “I believe that there are two key questions that need to be answered. First, did the losses from these trades threaten the safety and soundness of JPMorgan? And second, could it happen again? Last week, the Committee heard from the bank regulators that supervise JPMorgan. They answered the first question when they told us that the 2 billion dollar loss did not threaten the bank’s solvency, because the bank has strong earnings and sufficient capital. This conclusion shows once again why the single best way to protect taxpayers from bailouts is to ensure that banks are properly capitalized. Strong capital requirements provide a valuable buffer against unexpected losses arising from the inevitable missteps by banks and bank regulators.”
Sen. Shelby said, “Although JPMorgan enjoyed a strong reputation for effective risk management, something went very wrong. Regrettably, the Comptroller of the Currency, the Federal Reserve, and the FDIC were unable to tell us what happened, despite having more than 100 onsite examiners at JPMorgan.” “I hope Mr. Dimon can explain why these trades were made and why they produced such large losses. I also hope to learn the extent to which Mr. Dimon and other JPMorgan senior executives were involved in the decisions that permitted these trades.” “This hearing will have served a valuable purpose if it helps banks and bank regulators avoid repeating the mistakes of JPMorgan.”
Sen. Shelby also pointed out that the JP Morgan’s losses are not the most serious situation in banking. “It is unfortunate that the Committee has not held similar hearings with the heads of other financial institutions. Although the Committee is hearing from Mr. Dimon whose bank lost two billion dollars of its own money, it has never heard testimony from the executives of Fannie Mae and Freddie Mac, who have lost nearly 200 billion taxpayer’s dollars. Perhaps the Committee could turn its attention to the GSEs’ massive public losses when it completes its review of the relatively small private losses of JP Morgan Chase.”
JP Morgan Chase is one of the largest banks in the world and combines investment banking with consumer banking. JP Morgan Chase has $2.3 trillion in assets.
Sen. Richard Shelby resides in Tuscaloosa. He was first elected to the Senate in 1986 as a Democrat after serving in the U.S. Congress. He switched to the Republican Party in 1994.
To read Sen. Shelby’s comments in their entirety: