Traders in the JPMorgan unit behind a US$2 billion loss had little understanding of the risks they took, and the strategy was not rigorously reviewed, CEO Jamie Dimon has told US politicians.
Regulators say there were supervisory failures at the banking giant but assured there was no threat of "contagion" to other banks, although a key author of sweeping US financial reform insisted the trading debacle signalled broader problems that extend well beyond JPMorgan Chase.
Chief executive Dimon returned to Capitol Hill to explain again the loss by JPMorgan's London-based Chief Investment Office (CIO), whose strategy for the trades that led to the losses was "poorly conceived and vetted".
"The strategy was not carefully analysed or subjected to rigorous stress testing within CIO and was not reviewed outside CIO," Dimon told a House Finance Committee hearing, his second grilling in a week.
"In hindsight, CIO's traders did not have the requisite understanding of the risks they took."
Dimon was building on his earlier comments before a Senate hearing when he acknowledged the bank's poor judgment and apologised for the losses, but argued it was an "isolated event" dwarfed by the bank's huge capital cushion.
He repeated the argument on Tuesday, saying the firm's "fortress balance sheet" at the end of the first quarter showed US$190 billion in equity and over US$30 billion in reserves, part of the bank's overall deposits of US$1.1 trillion and loans of US$700 billion.
"In short, our strong capital position and diversified business model did what they were supposed to do: cushion us against an unexpected loss in one area of our business," Dimon said.
But Barney Frank, the committee's ranking Democrat and an author of the Dodd-Frank financial industry reform legislation of 2010, said "micromanaging" JPMorgan was not the goal, but that the losses were emblematic of a greater problem with large and complex derivatives trades.
"To me this is not a hearing about JPMorgan Chase. They are an example of a larger issue," Frank told regulators at the hearing, including Thomas Curry, head of the Office of the Comptroller of the Currency (OCC).
"If in a very well-run bank we get this loss of several billion dollars - three (billion) and counting, we're told - in a fairly short period of time, it's an indication of the problem with derivatives," Frank said.
Dimon has publicly led a fight against Dodd-Frank and especially the Volcker Rule, aimed at halting the often lucrative proprietary trade that critics say JPMorgan was doing when it scored the loss.