Dimon blames JPMorgan's $2 billion loss on 'complacency'

WASHINGTON -- JPMorgan CEO Jamie Dimon told Congress Wednesday that complacency kept bank executives from properly overseeing a unit that lost more than $2 billion and conceded that tough new banking rules he has opposed might have prevented part of the loss.

The bank's chief investment office "did so well for so long, a little complacency was taking place, maybe a little overconfidence," Dimon told the Senate Banking Committee. "We made a mistake. The buck stops with me."

Dimon said JPMorgan has appointed new executives to lead the chief investment office, taken steps to reduce risk and launched a review of the bungled trades. He also said the bank likely will "claw back," or retrieve, some of the pay of executives responsible for the loss.

Under bank policy, Dimon said, stock and bonuses can be recovered from executives, even for exercising bad judgment, although the policy has never been invoked.

The trading snafu has not hurt the profitability of the nation's largest bank. But it's providing ammunition to critics advocating rigorous constraints on banks just as regulators are debating details of legislation passed after the financial crisis three years ago.

The loss has heightened concerns that the biggest banks still pose risks to the U.S. financial system.

Sen. Robert Menendez, D-N.J., suggested a hypothetical $50 billion loss that causes a run on a bank "ultimately becomes the collective responsibility of each and every American."

JPMorgan's problem occurred in a portfolio of credit default swaps, which are designed to hedge against the risks of events such as the European debt crisis, Dimon said. In other words, when the economy goes into a tailspin and loans and other traditional investments incur big losses, the swaps typically generate a profit to offset some of the damage.

To meet new, higher bank capital requirements, JPMorgan's chief investment office was told to reduce risk in the portfolio. But instead of unloading holdings, executives added offsetting investments, enlarging the holdings.

"It morphed into something I just cannot justify," Dimon said. "Something too risky for our company." Rather than protect the firm, he said, it "created new and potentially larger risks. As a result, we have let a lot of people down, and we are sorry for it."

Dimon said the strategy was not carefully analyzed or reviewed outside the chief investment office and traders mistakenly believed the losses would be temporary. He said limits on risks the unit could take should have been lower and more specific.

Regulators, including the Securities and Exchange Commission are investigating whether the bank disclosed the loss to the public and financial regulators in a timely manner.

The so-called Volcker rule, slated to take effect in July, would prevent banks from making big risky trades with their own funds, but it would permit such trades to hedge risks or establish market prices.

Dimon said the Volcker rule "may very well have stopped part of what the portfolio morphed into."

At the same time, he said he still opposed the rule, adding, "I think it's going to be very hard to make a bright line distinction" between hedging and proprietary trading.

The swaps are "intended to earn a lot of revenue in the event of a crisis. I consider that hedging."