What Jamie Dimon told Congress: four key points

Jamie Dimon came to Washington Wednesday and promptly went down the rabbit hole of congressional inquiry.

That is: Much was said, little was revealed.

Mr. Dimon, CEO of JP Morgan and hailed as one of the smartest and most prudent bankers on Wall Street, continued trying out "contrite" as a descriptor after a supposedly super-safe part of his business blew up last month to the tune of $2 billion and counting.

"We have let a lot of people down, and we are very sorry for it," Dimon said in testimony to the Senate Banking Committee.

Also from the department of tried and true, the hearing demonstrated how much Republicans generally hate regulation (and specifically loathe the Dodd-Frank financial reform bill passed in 2009) while simultaneously demonstrating that Democrats think banks need a stronger regulatory hand.

But there were a few nuggets that emerged from Dimon’s two-hour stint on the congressional roasting spit.

In his view:

1. Financial reform's next big step is going to be a bear to implement.

The Volcker Rule, named after its advocate and former Federal Reserve Chairman Paul Volcker, would prevent banks from trading exclusively for their own profit, or what's known as proprietary trading. Instead, they'd be limited to hedging transactions (taking positions to protect themselves from catastrophic downside) and what's called market-making, or ensuring that their customers can complete transactions quickly and easily.  Currently, regulators are trying to figure out how exactly to put the rule into place.

But Dimon's $2 billion embarrassment came from a unit that's supposed to be hedging ­– meaning that it should have only gone down if there was a corresponding gain somewhere else. But there has been no gain.

As Sen. Richard Shelby (R) of Alabama wondered, if the unit responsible for disastrous trade generated some 10 percent of the company's total profit last year, is what JP Morgan calls hedging really hedging at all? 

Dimon didn’t really answer the question, agreeing that the unit was supposed to make money but leaving the size of its contribution to JP Morgan's bottom line alone. More broadly, he later said that figuring out what's a proprietary trade and what's a hedge is a difficult task.

"I think it's going to be very hard to make a bright line distinction between proprietary trading and hedging, because you can look at almost anything we do and call it one or the other. Every loan we make is proprietary. If we lose money, the firm loses money. If we buy Treasury bonds and they lose money, we lose money. So I have a hard time distinguishing [between the two]," Dimon said.

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