JP Morgan Chase (JP Morgan), the nation's largest bank holding company by asset size, had established a reputation for quality risk management. On May 10, 2012, Jamie Dimon, the bank's chairman and chief executive officer (CEO), held an unplanned conference call. As reflected in the firm's first quarter 2012 filings with the Securities and Exchange Commission (SEC), Mr. Dimon reported that, during the early part of the second quarter, a London-based office of the bank (insured depository) unit, the Chief Investment Office (CIO), sought "to hedge the firm's overall credit exposure" and incurred "slightly more than [a] $2 billion trading [paper] loss on … synthetic credit positions." The CEO characterized the trading strategy behind the loss as "flawed, complex, poorly reviewed, poorly executed and poorly monitored [and noted that] the portfolio has proven to be riskier, more volatile and less effective as economic hedge than we thought." He also said that the portfolio still contained securities with "a lot of risk and volatility going forward.... It could cost us as much as $1 billion or more…. [I]t is risky, and it will be for a couple of quarters." The loss was charged to the bank's corporate and private equity division, which houses the CIO. During the conference call, Mr. Dimon also indicated that the loss would be partially offset by a $1 billion gain from the sale of securities by the unit, resulting in an $800 million second quarter loss for the division. The May conference call occurred several weeks after a routine April 13, 2012, conference call in which Mr. Dimon reported on the bank's first-quarter earnings. During the April call, he referred to concerns raised over the bank's exposure to the money-losing trades (which he derided in the May call) as "a complete tempest in a teapot." The losses described in the May conference call were mark-to-market paper losses that had not been booked by the bank. While some analysts speculated that JP Morgan would not lose much more than the $2 billion, others speculated that the bank would ultimately lose as much as $5 billion or more. Final losses will depend on various unknowns, such as the proportion of the suspect trades that have not been liquidated or unwound, future movements of the indexes, the speed at which the bank tries to unwind those trades, and the size of the subsequent losses from the remaining positions. During the May conference call, Mr. Dimon said that the bank would be unwinding the trades in a deliberate manner. During a subsequent conference call on July 13, 2012, bank officials detailed key developments during the second quarter of 2012. During the call, Mr. Dimon indicated, with respect to the suspect trades, the CIO lost $1.6 billion and $4.4 billion, respectively, during the first and second quarters of 2012. Mr. Dimon also indicated that the CIO's total trading risk in the trades had been "significantly reduced." JP Morgan's shareholders have borne and will bear the impact of losses. The day after the May conference call, JP Morgan's stock price fell by about 9% and the value of its market capitalization fell by about $14 billion. On May 21, 2012, the bank announced that it was suspending a previously planned $15 billion stock buyback that regulators from the Federal Reserve approved in March 2012 after performing stress tests on the bank's capital. At about the same time, the bank decided to maintain its quarterly dividend of $0.30 a share. Buybacks can help boost the price of a company's shares. Since the May conference call, several class action shareholders suits, alleging that the bank misled investors, have also been filed. According to news reports, after the conference call, Fitch Ratings, a major credit rating agency, downgraded JP Morgan's short-term and long-term debt by a notch. Both are still categorized as investment grade debt. The reports also indicated that Fitch indicated that the $2 billion loss was "manageable." The rating agency also noted that the size of the loss and the "ongoing nature of these positions implies a lack of liquidity [and that the loss] also raised questions over JPM's risk appetite, risk management framework, and its practices and oversight." Several bank analysts have indicated that the report of the losses raised concerns about the quality of JP Morgan's risk management. However, there appears to be general consensus that the losses are relatively small when compared with the size of the bank's overall balance sheet. This view appears to be shared by officials at the Office of the Comptroller of the Currency (OCC), the financial regulator that oversees JP Morgan's national bank and various subsidiaries. On June 6, 2012, Comptroller of the Currency Thomas Curry testified that, "given the scale of the bank, the loss by JPMC affects its earnings, but does not present a solvency issue." The May conference call had a variety of other ripple effects both inside and outside of JP Morgan. The head of the bank's CIO stepped down. JP Morgan is conducting internal investigations of the losses, which are being overseen by the company's board. One outcome of the probe, T he CIO Task Force Update , was completed in July 2012. Among other things, the report, which described itself as a product of a JP Morgan "management review and assessment of circumstances surrounding the CIO's losses," criticized the CIO for "ineffective" risk management and exercising "poor" judgment with respect to various trades during the first quarter of 2012. Mr. Dimon also indicated that the board of directors would be examining whether bank employees responsible for the losses would be subject to the bank's heretofore unused compensation "clawback" policy. The policy enables the bank to require the return of certain compensation given to senior employees, including "unvested stock" and "cash bonuses," following actions deemed to be unsatisfactory, including "bad judgment." Meanwhile, OCC officials have indicated that the agency is "evaluating the compensation process of the CIO and will assess the bank's determination on clawbacks as part of that analysis [and] if corrective action is warranted." Various agencies, including the United Kingdom's financial services regulator (the Financial Services Administration), the SEC, the Commodities Futures Trading Commission (CFTC), the Federal Reserve (the Fed), the OCC, and the Federal Deposit Insurance Corporation (FDIC), have launched probes of various aspects of the trades. The Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) have begun probes aimed at determining whether there was criminal wrongdoing surrounding the trades. Congress has held hearings that have both touched on and been exclusively devoted to JP Morgan's trading losses. Key congressional interest derives from two broad concerns: (1) what the losses may help reveal about the efficacy of bank regulatory monitoring and oversight; and (2) potential insights that the losses may provide on implementation of various provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA; P.L. 111-203 ). This report provides general background on JP Morgan and its regulation; the CIO, the unit responsible for the losing trades; and the losing trades themselves. It examines various aspects of JP Morgan's operations with respect to the trades. This report is drawn from media reports, congressional testimony, and other sources. It will be updated as information from governmental investigations, shareholder lawsuits, official reports from JP Morgan, and other investigations develops. The report also examines several public policy issues involving large banks such as JP Morgan that have become more visible due to the trading losses. These issues include potential regulatory lapses and shortcomings in the regulatory reach; risk management at JP Morgan's CIO; Section 619 of the DFA, also known as the Volcker Rule; systemic significance of the losses; potential broader implications of the losses for other large banks; and the doctrine of "too big to fail" in the context of the JP Morgan trade losses. JP Morgan conducts business in some 60 countries, has more than $2 trillion in assets, and maintains 5,500 bank branches. The JP Morgan of today began as JP Morgan, a commercial bank, in the 19 th century. It has subsequently grown into a diversified financial complex through a series of acquisitions and mergers that have included Chase Manhattan, a commercial bank; Bear Stearns, an investment bank; and the banking operations of Washington Mutual, a thrift institution. In 2011, JP Morgan reported gross profits of about $99 billion and net profits of $19 billion. The bank engages in mortgage lending, credit card issuance, investment banking, and asset management. It is also serves as a primary dealer in U.S. government securities. Overall, the financial services company has several broad business lines: (1) retail financial services, (2) treasury and securities services, (3) card services, (4) investment banking, (5) commercial banking, (6) asset management, and (7) corporate/private equity. The Chief Investment Office (CIO) is a part of the corporate/private equity line, which also houses the company's risk management unit, the private-equity arm, and the treasury office. The CIO is tasked with the responsibility of "managing structural interest rate, currency and certain credit risks that are created from the day-to-day operations of the firm's primary lines of business across the company." The unit also "manages the [JP Morgan] firm's investment exposure while helping to advise lines of business on their own investment strategies [and] is responsible for managing the firm's interest rate risk, foreign exchange risk and other structural risks, each of which are critical measures for the firm."