| 00:00:26 |
Levin, Carl - U.S. Senator, [D] Michigan
OKAY. WE'LL COME BACK TO ORDER AND NOW WE WANT TO CALL OUR FINAL PANEL OF WITNESSES. THE HONORABLE TOM CURRY, THE COMPTROLLER OF THE CURRENCY, THE OCC'S...
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| 00:02:02 |
Curry, Thomas J. - Comptroller of the Currency
YOU WILL BE PRESENTING TESTIMONY I BELIEVE FOR THE OCC, WILL THAT BE THE ONLY TESTIMONY THAT WE'LL GET? >> MY COLLEAGUES WILL INTRODUCE THEMSELVES...
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| 00:07:48 |
Waterhouse, Scott N. - Examiner-in-Charge
TURN TO SCOTT AND MICHAEL TO INTRODUCE THEMSELVES TO THE SUBCOMMITTEE AND THEN WE WILL BE PLEASED TO ANSWER ANY QUESTIONS. >> THANK YOU SO MUCH, MR. CURRY....
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| 00:08:49 |
Sullivan, Michael - Deputy Comptroller
OF THE BANK'S ACTIVITIES. I AND SEVERAL MEMBERS OF MY STAFF HAVE BEEN PLEASED TO ASSIST THE SUBCOMMITTEE IN THE INVESTIGATION AND I'M HAPPY TO ANSWER...
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| 00:10:15 |
Levin, Carl - U.S. Senator, [D] Michigan
OCC SUPERVISORY RESPONSE ON THE TRADING LOSS IN ORDER TO IDENTIFY LESSONS WE CAN LEARN FROM THIS EVENT. I CHRONICLED MY FINDINGS AND REPORT TO THE COMPTROLLER...
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| 00:11:34 |
Levin, Carl - U.S. Senator, [D] Michigan
BY MARCH OF 2012 IT COMPILED A HIGH-RISK MIX OF OVER 100 CREDIT DERIVATIVES THAT REFERENCED BOTH INVESTMENT AND NON-INVESTMENT GRADE COMPANIES AND...
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| 00:12:21 |
Waterhouse, Scott N. - Examiner-in-Charge
6, 2012, WHALE TRADES AND TELL US WHAT YOUR REACTION WAS? >> HOW MUCH DID YOU KNOW ABOUT THE WHOLE SEP PORTFOLIO? WELL, AT THAT POINT IN TIME I KNEW...
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| 00:13:02 |
Waterhouse, Scott N. - Examiner-in-Charge
ACTIVITIES WHERE? >> ALL ACROSS THE BANK. >> SO YOU DIDN'T DOLLAR THAT TO BE A HIGH-RISK ACTIVITY? >> I DID NOT. >> YOU HAD NO REASON TO BELIEVE THAT...
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| 00:18:03 |
Levin, Carl - U.S. Senator, [D] Michigan
DANGERS. THAT'S ONE OF MANY ADJECTIVES THAT WOULD FIT. IF A PORTFOLIO CONSISTS OF SYNTHETIC DERIVATIVES. MAYBE I'LL ASK THIS OF YOU, MR. CURRY, DOES...
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| 00:18:56 |
Waterhouse, Scott N. - Examiner-in-Charge
KEY TOOL FOR OFFSETTING CREDIT RISKS IN THEIR $350 BILLION PORTFOLIO AND MAYBE FOR THE REST OF THE BANK AS WELL. SHOULD THE BANK HAVE TOLD YOU ABOUT...
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| 00:19:23 |
Curry, Thomas J. - Comptroller of the Currency
RIGHT. WHAT IS THE REGULATORY STANDARD? MAYBE I'LL ASK YOU, MR. CURRY OR WHOEVER YOU WISH TO DESIGNATE, WHAT IS THE STANDARD WHEN THE BANK IS REQUIRED...
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| 00:19:56 |
Waterhouse, Scott N. - Examiner-in-Charge
BASE IT ON SPECIFIC REGULATORY OR OTHER REQUIREMENTS. WE NEED TO HAVE FULL KNOWLEDGE OF THE BANK'S ACTIVITIES. >> SENATOR, IF I MAY, JUST JUMP IN...
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| 00:31:44 |
Levin, Carl - U.S. Senator, [D] Michigan
OF LEAKING? >> I DON'T THINK SO, BUT I THINK AT THAT POINT IN TIME THEY WERE UNSURE WHERE THEY WERE COMING FROM. IT COULD HAVE BEEN AN INTERNAL BANK...
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| 00:31:54 |
Waterhouse, Scott N. - Examiner-in-Charge
ANYWHERE. >> ALL RIGHT. AS YOU POINTED OUT, YOU ESCALATED THE ISSUE TO URGE A REVERSAL OF THE DECISION. IS THAT CORRECT? >> I DID. AND MR. BRONSTEIN AGREED...
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| 00:36:53 |
Curry, Thomas J. - Comptroller of the Currency
WELCOMEDS OF BANKINGS IN McI MAS. ANDY HAD THE BANK OF MASSACHUSETTS? 1784 SIGNED BY JOHN HANCOCK AND THE LAST PROVISION OF IT SAID THE EXAMINER APPOINTED...
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| 00:37:15 |
Levin, Carl - U.S. Senator, [D] Michigan
UNACCEPTABLE PREMISE THAT THE BANK DECIDES WHAT INFORMATION IS PROVIDED TO THE OCC AND TAR EXAMINERS. >> SO WHEN MR. DIMON IS GIVING A HARD TIME TO HIS...
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| 00:37:49 |
Curry, Thomas J. - Comptroller of the Currency
CORRECT? >> THAT IS CORRECT. NOW, MR. CURRY WHEN SENIOR EXECUTIVE IN A BANK IS ENGAGING IN STOPPING THE TRANSMISSION OF KEY DATA IS THAT A MESSAGE...
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| 00:39:22 |
Waterhouse, Scott N. - Examiner-in-Charge
WHY DIDN'T THE -- AND I'LL ASK YOU, MR. WATERHOUSE, WHY CANNOT THE OCC EXAMINERS, WHY DIDN'T YOU ASK THE BANK FOR MISSING REPORTS UNTIL MID-APRIL ...
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| 00:40:05 |
Sullivan, Michael - Deputy Comptroller
POINT OUT IN OUR REPORT THAT WE SHOULD HAVE SEEN AND DONE BETTER AT. >> MR. SULLIVAN, YOU LOOKED INTO THE QUESTION OF HOW THE OCC MISSED THESE FLAGS....
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| 00:42:26 |
Waterhouse, Scott N. - Examiner-in-Charge
2012 AND THEN IN APRIL 160 BREACHES IN THAT ONE MONTH ALONE. SO I TAKE IT, MR. WATERHOUSE, YOU WOULD AGREE THAT THAT'S A PRETTY BIG JUMP, A BIG JUMP...
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| 00:43:00 |
Sullivan, Michael - Deputy Comptroller
HAVE. >> OKAY. OUT IN NOW, MR. SULLIVAN WHAT DID YOU FIND IN YOUR INVESTIGATION? >> IN TERMS OF THE 2012 EXCEPTIONS AND ONE THING AS PART OF OUR REPORT...
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| 00:43:58 |
Levin, Carl - U.S. Senator, [D] Michigan
TRACK OF EXCESSES AND WE'RE WORKING ON AUTOMATING THE SYSTEM, BUT CERTAINLY, I THINK EVEN AT THE TIME THEN PEOPLE WOULD AGREE WE SHOULD HAVE FOLLOWED...
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| 00:44:28 |
Waterhouse, Scott N. - Examiner-in-Charge
BECAUSE THERE'S NOT ENOUGH PEOPLE AT THE OCC TO READ THESE REPORTS? I MEAN, HOW DOES IT HAPPEN? >> WE HAVE A -- I THINK OUR CAPITAL MARKETS TEAM WHICH...
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| 00:45:50 |
Levin, Carl - U.S. Senator, [D] Michigan
AND ON 4/19, 2012, AN OCC EXAMINER FINALLY CONTACTS THE BANK ABOUT THE SEP'S MANY RISK BREACHES INCLUDING CSO1. IF WE TAKE A LOOK AT 1D, EXHIBIT 1D...
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| 00:47:40 |
Waterhouse, Scott N. - Examiner-in-Charge
FOR THREE YEARS AND THEY DIDN'T REPLACE IT FOR THREE YEARS, IS THAT -- SHOULDN'T THAT HAVE BEEN CAUGHT BY THE OCC? SHOULDN'T YOU HAVE NOTICED THAT...
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| 00:49:14 |
Sullivan, Michael - Deputy Comptroller
MR. SULLIVAN, IS THIS SOMETHING THAT YOU LOOKED INTO, AS WELL? >> SORRY, COULD YOU? >> YEAH. THE QUESTION OF THE RISK LIMITS NOT BEING REVIEWED. IS THAT...
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| 00:51:06 |
Levin, Carl - U.S. Senator, [D] Michigan
IT RESULTED IN AN OVERNIGHT 50% DROP IN THE CIO'S RESULTS AND WE HAVE A CHART UP HERE SHOWING THAT DROP. UNDER THE OLD MODEL THE VAR WAS $132 MILLION...
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| 00:52:02 |
Waterhouse, Scott N. - Examiner-in-Charge
THE NEW MODEL WOULD IMMEDIATELY LOWER THE CIO BY 44%. MR. WATERHOUSE DID ANY OCC EXAMINER TAKE NOTE IN JANUARY OF THE PLANNED CHANGE IN THE VAR MODEL?...
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| 00:52:30 |
Sullivan, Michael - Deputy Comptroller
IN. >> OKAY. NOW SHOULDN'T THE MODEL AND I'LL ASK MR. SULLIVAN THIS QUESTION. IT PRODUCES A 44% DROP OVERNIGHT RAISE A RED FLAG TO CAUSE THE OCC TO...
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| 00:54:26 |
Levin, Carl - U.S. Senator, [D] Michigan
MEAN, THAT'S -- NOT ONLY A RED FLAG, THAT'S A PRETTY BRIGHT RED FLAG, IS IT NOT? >> I WOULD SAY SO, SO IT'S SOMETHING THAT YOU WOULD WANT TO FOLLOW...
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| 00:54:59 |
Sullivan, Michael - Deputy Comptroller
2.5 IT WOULD BE EVEN STRANGER TO SEE A 44% VAR DROP. AND IF IT WEREN'T FOR THE COMING OF BASEL, TOO. >> BASEL 2.5 WAS NOT YET IN EFFECT. THE BANQUET...
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| 00:55:47 |
Levin, Carl - U.S. Senator, [D] Michigan
THAT WOULD GO ACROSS THE SYSTEM SO THE NOW ALL SIGNIFICANT MATERIAL OF VAR MODEL CHANGES ARE REPORTED BY THE BANK IN THE OCC IN REGULAR MEETINGS AND...
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| 00:57:03 |
Sullivan, Michael - Deputy Comptroller
ALSO LEARNED THAT THE VAR MODEL WAS DEVELOPED BY CIE'S PAT HAGTON TO LOWER THE VAR. >> IF I MAY, CHAIRMAN LEVIN, ONE REASON THEY HAD TO CHANGE THE ...
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| 00:57:51 |
Waterhouse, Scott N. - Examiner-in-Charge
HIM. >> NO, WITH A PURPOSE OF LOWERING THE VAR. >> FOR THE PURPOSE OF LOWERING IT, NO, I HAVEN'T SEEN THAT AS THE STATED PURPOSE OF IT. >> IF YOU...
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| 01:00:50 |
Levin, Carl - U.S. Senator, [D] Michigan
MR. WATERHOUSE, DID ANY OCC EXAMINER KNOW ABOUT THAT DIFFERENCE IN THE MODEL RESULTS AT THAT TIME? >> NO, NOT AT THAT TIME. I DON'T THINK. >> AS FAR...
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| 01:01:44 |
Sullivan, Michael - Deputy Comptroller
ABOUT 20%. SO MR. SULLIVAN, MAYBE YOU CAN EXPLAIN THIS TO US. HOW DOES THE SAME TRADING ACTIVITY SUDDENLY DETERMINE TO BE 20% LESS RISKY THAN THE DAY...
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| 01:02:31 |
Levin, Carl - U.S. Senator, [D] Michigan
SO WE GUIDE DECIDED NOT TO ALLOW THEM TO USE THAT FOR THE PURPOSES OF REGULATORY CAPITAL. >> IF YOU WOULD, TURN, PLEASE, TO EXHIBIT 46, AND THIS IS,...
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| 01:04:23 |
Sullivan, Michael - Deputy Comptroller
MAINTAIN. NOW, WITHOUT GETTING INTO THE OCC'S EVALUATION OF JPMORGAN'S MODELS, WITHOUT DOING THAT, WHAT'S YOUR REACTION WHEN YOU SEE A BANK TRYING...
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| 01:04:58 |
Curry, Thomas J. - Comptroller of the Currency
OF THE SITUATION. >> WELL, IN GENERAL, LET ME ASK YOU, MR. CURRY, WHAT'S YOUR REACTION TOING THAT ACTIVITY, REDUCING THE RWA NOT BY SELLING RISKY ASSETS...
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| 01:08:50 |
Sullivan, Michael - Deputy Comptroller
TO HIDE FITS HEAD IN THE SAND AFTER IT PAYS ITS COUNTER PARTIES SUCH A HUGE AMOUNT OF MONEY ON THESE COLLATERAL DISPUTES AND INSISTS AGAINST CONTRARY...
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| 01:11:49 |
Levin, Carl - U.S. Senator, [D] Michigan
OVER TO THE EXTREMES IN ORDER TO REDUCE THE APPARENT LOSS IN THE BOOKS? IS THAT NOT A TROUBLING SET OF FACTS, MR. CURRY? >> YES, IT IS, SENATOR....
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| 01:12:09 |
Waterhouse, Scott N. - Examiner-in-Charge
RKS, THE REPORT -- IS THERE AN INDUSTRY PRACTICE ON THIS QUESTION? I MEAN, SHOULDN'T YOU STICK TO YOUR PROCESS AND IF YOU'RE GOING TO CHANGE IT, HAVE...
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| 01:13:24 |
Waterhouse, Scott N. - Examiner-in-Charge
BILLION OR 70% MORE THAN THE ACTUAL OR THE LOSSES THAT WERE REPORTED. AND IS IT NOT THAT KIND OF A VARIANCE THAT LEADS TO POTENTIAL
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| 01:13:42 |
Curry, Thomas J. - Comptroller of the Currency
ABUSE, MR. WATERHOUSE. >> YEAH, ABSOLUTELY AND IT'S IMPORTANT FOR US AS A REGULATOR TO KNOW WHAT THE ACTUAL MARKET IS AND BE INFORMED ON A TIMELY...
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| 01:14:06 |
Waterhouse, Scott N. - Examiner-in-Charge
UNSAFE AND UNSOUND ACTIVITY IN OUR CEASE AND DESIST ORDER, AND IT IS A FOCUS OF THE AFFIRMATIVE PROVISIONS IN THE AUDIT THAT REQUIRE CORRECTIVE ACTION....
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| 01:15:00 |
Levin, Carl - U.S. Senator, [D] Michigan
EXAMINER TOLD US THAT IT WAS CLEAR FROM THE NUMBERS THAT THE CIO WAS MARKING PRICES AT THE EDGE OF "WHAT THEY COULD GET AWAY WITH," AND THEY WERE...
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| 01:15:52 |
Waterhouse, Scott N. - Examiner-in-Charge
WHEN YOU SEE THAT KIND OF A SHIFT IN THE WAY THEY WANT ARE MADE AT THE TIME THEY ARE MADE WHEN THE LOSSES ARE PILING UP, THAT THOSE NUMBERS THEMSELVES...
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| 01:18:36 |
Curry, Thomas J. - Comptroller of the Currency
CAUD THEIR MARKS IDIOTIC. I MEAN, THAT'S SURELY TRUE, BUT I MEAN, YOU CAN'T WAIT FOR THE PERSON DOING THE MARKING TO SAY THAT HIS MARKS ARE IDIOTIC...
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| 01:18:54 |
Curry, Thomas J. - Comptroller of the Currency
NORMAL PRACTICE, AND BY THE WAY, A TOTAL DEVIATION FROM THEIR OWN INVESTMENT BANK'S PRACTICES, AND AT A TIME WHEN THE LOSSES ARE PILING UP AND JUST...
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| 01:19:21 |
Levin, Carl - U.S. Senator, [D] Michigan
INSTITUTIONS SO MERELY MEETING A REGULATORY OR ACCOUNTING STANDARD IS NOT ALWAYS SUFFICIENT. >> YOU KNOW, I WELCOME THAT. I'M GLAD TO HEAR THAT, BUT...
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| 01:20:58 |
Curry, Thomas J. - Comptroller of the Currency
OUR CONVERSATION WITH MISS DREW ABOUT THIS TRANSCRIPT. THEY'RE TALKING ABOUT WHAT MARKS TO SHOW FOR THE SCP THAT DAY, AND SHE SAYS AT ONE POINT, DID...
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| 01:21:45 |
Waterhouse, Scott N. - Examiner-in-Charge
EXTRA BASIS POINT YOU CAN TWEAK AT WHATEVER IT IS I'M TRYING TO SNOW, YOU KNOW WITH DEMONSTRATABLE DATA. SHE SAID BEFORE THAT, IT'S ALL FINE TO BE...
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| 01:22:32 |
Levin, Carl - U.S. Senator, [D] Michigan
RULES -- I THINK YOU'VE ALREADY COMMENTED ON THIS, MR. CURRY. BUT LET ME MAKE SURE. WE HAVE SHOWN A DERIVATIVE VALUATION PROCESS WHICH IS TOO...
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| 01:23:20 |
Curry, Thomas J. - Comptroller of the Currency
BANKS TO USE INDEPENDENT PRICING SERVICES TO REMOVE THE TEMPTATION FROM THEIR OWN EMPLOYEES TO TWEAK MARKS. WE ALSO RECOMMEND THAT BANKS HAVE TO...
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| 01:25:01 |
Waterhouse, Scott N. - Examiner-in-Charge
ON AND ON A REGULAR AND RECURRING BASIS AS PART OF OUR NORMALIZED REPORTING. MR. WATERHOUSE, IS THAT TRUE? >> THAT IS NOT TRUE. >> REGULATORS DID NOT...
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| 01:28:05 |
Waterhouse, Scott N. - Examiner-in-Charge
WAS SAYING THAT HE WAS -- THAT THIS WAS A HEDGE AGAINST A SIGNIFICANT STRESS EVENT? WE PUT ON POSITIONS TO MANAGE FOR A SIGNIFICANT STRESS EVENT IN CREDIT....
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| 01:28:32 |
Levin, Carl - U.S. Senator, [D] Michigan
IN A CALL MADE, IT WAS A PUBLIC CALL THAT WAS MADE THAT BRAUSTEIN MADE ON APRIL THE 13th. THAT WAS A MISSTATEMENT, MISREPRESENTATION AND FLAT OUT FALSITY...
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| 01:29:26 |
Waterhouse, Scott N. - Examiner-in-Charge
THINK YOU'VE ALREADY SAID THAT THE BANK DID NOT RECEIVE -- EXCUSE ME, THAT THE OCC DID NOT RECEIVE DAILY CIO PROFIT AND LOSS DATA, RIGHT, MR. WATERHOUSE,...
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| 01:31:50 |
Levin, Carl - U.S. Senator, [D] Michigan
OCC EITHER. THE DOWNWARD SLOPING LINE REPRESENTS INCREASING LOSSES. SO I THINK WOULD YOU AGREE THAT THIS SHOWS AS A MATTER OF FACT THAT THE SYNTHETIC...
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| 01:32:19 |
Waterhouse, Scott N. - Examiner-in-Charge
THE SCIP TRIPLED FROM THE $51 BILLION TO $157 BILLION IN MARCH. THE CIO TRADERS WENT ON A BUYING SPREE ENGAGING IN SEVERAL HUGE TRANSACTIONS THAT ADDED...
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| 01:33:22 |
Levin, Carl - U.S. Senator, [D] Michigan
APPROACH? >> THIS IS DEFINITELY A HIGH RISK APPROACH. >> YEAH, OKAY. SO MR. WATERHOUSE, TAKE A LOOK, IF YOU WOULD, AT EXHIBIT 50. NOW, THAT'S AN E-MAIL...
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| 01:35:02 |
Waterhouse, Scott N. - Examiner-in-Charge
OPTIMIZING HERE MEANS TO PRODUCE THE LOWEST POSSIBLE RWA. NOW, DOES THE OCC INTEND THAT ITS REGULATORY CAPITAL RULES BE IMPLEMENTED BY THE BANKS THAT...
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| 01:36:34 |
Sullivan, Michael - Deputy Comptroller
OCC ALLOW OPTIMIZATION ONE TIME AND THEN FROM THERE ON, HEY, QUIT IT? >> WHAT I WOULD SAY IS THAT BASEL 2.0 RULES ARE FAIRLY CLEAR WILL THE DISTINCTION...
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| 01:38:37 |
Levin, Carl - U.S. Senator, [D] Michigan
CRISIS. >>, >>. >>
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| 01:38:59 |
Curry, Thomas J. - Comptroller of the Currency
NOW, MR. CURRY, LET ME GO OVER THE RECOMMENDATIONS THAT WE'VE MADE IN OUR REPORT OR SO-CALLED LEVIN McCAIN RECOMMENDATIONS. GET YOUR REACTION TO...
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| 01:39:32 |
Curry, Thomas J. - Comptroller of the Currency
IDENTIFY ALL INTERNAL INVESTMENT PORT FOALSIA INCLUDE DERIVATIVES OVER A SPECIFIED NOTIONAL SIZE, REQUIRE PERIODIC REPORTING ON DERIVATIVE PERFORMANCE,...
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| 01:43:55 |
Curry, Thomas J. - Comptroller of the Currency
TRILLIONS HERE, FOR NA THAT MATTER. HAVE YOU GIVEN THOUGHT AS TO HOW WE'RE GOING TO PROVIDE SOME CONTROL, LIMITS SO THAT THESE DO NOT CREATE A MAJOR...
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| 01:44:20 |
Levin, Carl - U.S. Senator, [D] Michigan
LEAST FROM A SUPERVISORY STANDPOINT, WE NEED TO BE MUCH MORE ALERT AND MAKE SURE WE HAVE BOTH THE RESOURCES IN TERMS OF CAPITAL MARKET SKILLS AND A...
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| 01:45:17 |
Curry, Thomas J. - Comptroller of the Currency
FIRST, HAVE YOU FOUND SAFETY AND SOUNDNESS PROBLEMS IN THE CIO'S DERIVATIVE VALUATION CONTROL? >> YES, AND THAT IT'S PROVISION OF OUR AUDIT, AS WELL....
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| 01:46:18 |
Levin, Carl - U.S. Senator, [D] Michigan
OFFICE. >> AM I CORRECT THAT YOU GOT THE NEXT STEP RELATIVE TO THE CEASE AND DESIST ORDER IS TO EVALUATE COMPLIANCE WHEN THE TIME COMES AND TO THEN...
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NOTE: The transcript for this program was compiled from uncorrected Closed Captioning.