WASHINGTON — JPMorgan Chase CEO Jamie Dimon told Congress on Wednesday that senior bank executives responsible for a $2 billion trading loss will probably have some of their pay taken back by the company.

Under bank policy, stock grants and bonuses can be recovered from executives, even for exercising bad judgment, Dimon told the Senate Banking Commitee. The policy has never been invoked, he said, but he strongly suggested that it will be.

"It's likely that there will be clawbacks," he said.

Among the most likely candidates would be Ina Drew, JPMorgan's chief investment officer, who left the bank days after Dimon disclosed the loss on May 10. Drew oversaw the trading group responsible for the $2 billion loss.

Dimon, under close questioning from lawmakers about his own role in setting up the investment division responsible for the mess, declared: "We made a mistake. I'm absolutely responsible. The buck stops with me."

The trading loss has raised concerns that the biggest banks still pose risks to the U.S. financial system, less than four years after the financial crisis erupted in the fall of 2008.

Dimon's reputation for cost cutting and his perceived mastery of risk, particularly during the crisis, earned him respect in Washington. JPMorgan Chase & Co. weathered the crisis with relatively little damage.

At every turn before the committee, Dimon responded easily and in rapid-fire style to questions. He sounded notes of contrition – "We should have gotten it earlier" – but also defended the bank and his own criticism of some financial regulation.

Other than a few critical jabs from a couple of Democratic senators, the panel's treatment of Dimon was gentle compared to that received by other Wall Street executives in recent years on Capitol Hill.

Lloyd Blankfein, the CEO of Goldman Sachs, was roughed up at a hearing by a Senate investigative panel looking into allegations that the firm steered investors toward mortgage securities it knew would likely fail.

In December, former New Jersey Gov. Jon Corzine endured grueling questioning by three different committees over the collapse of the brokerage firm MF Global, which he had led as CEO.

Those grillings came after a parade of financial titans were derided and questioned by congressional committees conducting autopsies of the financial crisis for the TV cameras.

On Wednesday, Sen. Jim DeMint, R-S.C., told Dimon sympathetically that Congress manages to lose at least $2 billion every day. Referring to the bank, he said: "You appear to be in much better fiscal shape than we are as a country."

"The intent here is really not to sit in judgment," the senator said.

Far from crouching, Dimon appeared to strike a posture of a public advocate as the hearing ended. He urged Congress to act quickly to avoid the so-called fiscal cliff at the end of this year, when billions of dollars in tax cuts will expire and billions more in automatic government spending cuts will take effect.

"I think we'd better do something now, so we don't create additional uncertainty among businesses and consumers," Dimon said.

The start of the hearing was delayed by demonstrators in the room who shouted about stopping foreclosures. Another demonstrator shouted, "Jamie Dimon's a crook." At least a dozen people were escorted from the hearing room.

Dimon appeared serene during the outbursts, which lasted several minutes. At another point before the questioning began, he gave a broad smile.

The JPMorgan CEO contended that the trading loss, disclosed in a surprise conference call with reporters and banking analysts, was meant to hedge risk to the company and to protect it in case "things got really bad."

Two Democrats on the committee, Sens. Charles Schumer of New York and Robert Menendez of New Jersey, expressed concern about what would have happened if the trading loss had occurred at a weaker bank.

JPMorgan Chase is the largest bank in the United States by assets and is considered among the strongest. Dimon often makes note of the bank's "fortress balance sheet."

But Menendez hypothesized about a larger loss, perhaps $50 billion, that creates a run on the bank "and that ultimately becomes the collective responsibility of each and every American."

Menendez also challenged Dimon on his strenuous opposition to stricter financial regulation and noted that JPMorgan received a $20 billion taxpayer bailout loan at the depths of the 2008 crisis.

Dimon last September described as "anti-American" new international standards stipulating banks hold larger cash cushions to protect against losses, which U.S. regulators also have proposed for U.S. banks.

"You railed against us when we were in fact trying to pursue great capitalization of these banks," Menendez said. And he reminded Dimon scoldingly: "It seems to me that the American people are a big part of helping to make your bank healthy."

Dimon insisted that his bank "did not fight everything" and that there are elements of tougher financial regulation that he does support.

He skated a fine line in talking about his specific role in relation to the bank's trading operation. Asked whether he personally approved the investment office's trading strategy, Dimon said, "I was aware of it, but I didn't approve it."

Sen. Bob Corker, R-Tenn., who has received $10,000 since January 2011 from JPMorgan's political action committee, the most any candidate has received from the bank, praised Dimon as one of the "best CEOs in the country for financial institutions."

Still, he wondered: "You missed this. It's a blip on the radar screen. But are these institutions today just too complex to manage?"

Sixteen of the 22 members of the banking panel, including Chairman Sen. Tim Johnson, D-S.D., and senior Republican Sen. Richard Shelby of Alabama, have received money from the bank's political action committee, according to figures compiled by the Center for Responsive Politics.

JPMorgan Chase's stock price was flat at the start of trading, at 9:30 a.m., but began climbing steadily when the hearing began at 10 a.m. It finished the day up 1.6 percent, the second-best performer among the 30 stocks in the Dow Jones industrial average, after Johnson & Johnson.

The so-called Volcker rule, which goes into effect in July, will prevent banks from making certain trades for their own profit. Banks won an exemption to trade to protect their broad portfolios, as Dimon has said JPMorgan was doing in this case.

Dimon told the committee, however, that "I have a hard time distinguishing it." He allowed that "it's possible" that the Volcker rule would have prevented the debacle at JPMorgan but said he didn't know.

The CEO said that JPMorgan adopted a strategy late last year to reduce risk, but it backfired in its investment operation by heightening risk instead. The bank has named a new leader for the investment operation that was responsible for the loss.

A key regulator of JPMorgan, Thomas Curry, the U.S. comptroller of the currency, suggested last week that the bank lacked strong controls to contain risk in its investment operations.

And The Wall Street Journal reported Tuesday that some senior JPMorgan executives, including the chief financial officer and chief risk officer, were told about risky trading in London two years before the losses came to light.

Dimon himself knew of some of the trades and sometimes spoke with the traders involved, the Journal reported, citing unnamed people familiar with the matter.

The Securities and Exchange Commission is reviewing what JPMorgan told investors about its finances and the risks it took before the loss.

In April, in a conference call with analysts, Dimon dismissed concerns about the bank's trading as a "tempest in a teapot." Later, adopting a more conciliatory stance, he conceded that he'd been "dead wrong" to minimize those concerns.

Follow here for live updates from HuffPost's Mark Gongloff. A live video stream appears below.

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Check out this video from Fox Business of Jamie Dimon shaking hands and shmoozing with Senators before his testimony (h/t Business Insider):

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@ hblodget : The most important thing Dimon said was "we didn't understand the risks." Message is: If they didn't, no one does.

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Well, that sad circus is finally pulling out of town.

What have we learned?

1. Purple ties really bring out the blue in your eyes.

2. When throwing out bathwater, check to make sure there's not any babies in it.

3. Markets solve every single financial crisis they cause.

4. Jamie Dimon's God is an angry, jealous God.

5. Seriously, Jamie Dimon claims he feels bad about his bank's losses, but he really doesn't seem to feel the least bit sorry.

6. Dimon has not changed his mind one iota about regulation -- he still thinks it's pretty much all bad.

7. Congress is probably going to agree with him.

8. We will have more financial crises.

Thanks for playing, everyone. Let's be careful out there.

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In response to questioning by David Vitter (R-La.), Dimon finally says he thinks the Volcker Rule is just going to be too hard to get right and isn't even necessary at all.

Earlier in the hearing, he was much more hedged about this. He earlier said he didn't know if the Volcker Rule would have prevented his bank's loss in credit derivatives.

Now he's basically saying it wouldn't have.

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Dimon also said that markets, not regulations, fixed up all the problems that caused the last financial crisis. Yes, markets.

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@ grossdm : Jamie Dimon says JPM isn't in the hedge fund business. Except for the hedge fund business it owns. http://t.co/RYflAer5

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Earlier, Dimon trotted out all of his other old arguments against regulation, saying the financial system provides liquidity that makes finance cheaper for the world and only occasionally results in massive global financial meltdowns.

He also warns we risk throwing it all away unless we spend years and years thinking about and watering down regulation:

"We have the widest, deepest and best capital markets in the world," he sobbed. "It would be a shame to shed that out of anger." See Baby, Bathwater.

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Merkley is also the first senator to ask about Bloomberg's reports that Dimon pushed the CIO to take bigger risks.

Dimon, obviously angry with Merkley, dodges the question with a lot of numbers about how non-risky the CIO's overall portfolio is.

Merkley asks again, and Dimon says "I don't believe everything I read, I hope you don't either."

Asked a third time about it, he mutters something about not knowing what he's talking about, how he'll have to get more detail.

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Jeff Merkley (D-Ore.) swings the Old Testament hammer at Jamie Dimon:

"If you had applied Old Testament justice in 2008, JPMorgan would have gone down, and you would have been out of a job."

Dimon is visibly angry.

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Dimon is now in full regulation-bashing mode, bringing out his old warning that we don't "throw the baby out with the bathwater" when we regulate banks.

In this metaphor, which Dimon has used often in the past, the "baby" is the magnificent U.S. financial system, and the "bathwater" is Bear Stearns, or something like that.

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@ joshtpm : Tea Party Champion Lets Jamie Dimon Off The Hook http://t.co/xwUaDg3T via @TPMLivewire

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Jamie Dimon just went all medieval on the concept of Too Big To Fail, saying he wants that concept not only to go away but to die a painful death.

"We have to allow big institutions to fail," he said. "We shouldn't prop them up."

He wants executive pay clawbacks, management and the board to be fired, stockholders to be wiped out. And there's more!

"I think their name should be buried in disgrace," he added. "This is Old Testament justice here."

Nobody can disagree, really. But: Dimon's bank may well not be in existence if it were not for the taxpayer's assistance to JPMorgan and all of its TBTF friends.

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@ jack_welch : Jamie Dimon doing a great job today at hearing....

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Dimon says JPMorgan Chase's "Job No. 1" is to serve clients.

"That's in their hearts, to do the right thing every day," he says of his employees. "We ask them to treat people the way they would treat their friends or parents."

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@ pkedrosky : All of the endless & tedious tweeting about Jamie Dimon/JPM almost has me pining for the Facebook IPO. Almost.

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Jon Tester (D-Mont.) has the gall to bring up MF Global at this cozy hearing! He wants to know why JPMorgan Chase held onto MF Global client money for seven months.

Dimon says the bank was waiting for guidance from the bankruptcy trustees and courts before releasing the money. They "weren't deliberately withholding the money."

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"We still haven't fixed the mortgage markets," Dimon says.

Oh yeah, that. Five years after the subprime crash, there is still somewhere on the order of $1 trillion in negative equity in the housing market, and home prices in many parts of the country continue to fall. Homes in some parts of Ft. Myers, Fla. are selling for as little as $5,000. And the government's effort to force banks, including JPMorgan Chase, to write off at least some of the principal on these loans as punishment for ignoring homeowners and illegally speeding borrowers through foreclosure is off to a depressingly slow start, as we reported yesterday.

--Ben Hallman

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Mike Johanns (R-Neb.) gets Dimon further wound up, asking him if maybe Dodd-Frank was driving businesses away from America, and Dimon says, yes, he thinks maybe it is.

"I talk to a lot of businesspeople and do hear a lot of people saying it's easier to be overseas, and several people have moved overseas," Dimon says, more in sadness than in anger.

Johanns says very meaningfully that no new bank had been chartered last year for the first time in a billion years or something, and Dimon says he wasn't aware of that, and shakes his head together with Johanns in mutual horror at this state of affairs.

Meanwhile, the Global Financial Crisis is banging on the door of the hearing room, begging to get in and be recognized/remembered.

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Thirteen more senators, five minutes apiece, still to go. Good times.

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Dimon says he did not personally approve the CIO's dumb trade, but he was aware of it. Which is sort of the same thing, no?

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Dimon is now saying Dodd-Frank is just terrible:

"I believe in strong regulation, not more," he said in response to some revving-up by Jim DeMint (R-S.C.)

"I would have preferred a simple, clean strong regulatory system with real intelligent design, and that's not what we did," he adds.

"We created a really complex" system, he said, that's hard to figure out "who has responsibility and authority."

Ha ha, DeMint asks Dimon to come back to testify again to help them figure out regulation.

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Robert Menendez (D-N.J.) turns up the heat a little bit, asking Dimon if his firm really wasn't just gambling, not hedging. Dimon denies that, of course.

He questions Dimon about past statements, which Dimon once made as regularly as he brushes his teeth, bashing regulation, including calling greater capital requirements "anti-American."

Dimon declares that Menendez is not quoting him correctly. He says his bank is all about regulation -- it supports "parts of" regulation and reform, higher capital requirements, all that stuff. Loves it! Can't get enough of it!

The "anti-American thing," Dimon calls it, was just about how some reforms were putting American banks at a disadvantage, that's all. Why does everybody always get hung up on it?

Menendez says he's going to review the transcript to see what Dimon said, that he thinks Dimon is the one with the faulty memory. He also asks Dimon, basically, why he has the gall to always be complaining about regulation when his bank and his industry are alive because of taxpayer money.

Dimon says he thinks some reforms don't make sense, and he's entitled to say when they don't make sense.

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He's starting to get warmed up a little bit now. The American financial system is the greatest in the world, he declares. "I hope we get back to working again instead of just shooting each other all the time." Ah, yeah, there's the defensiveness we were looking for.

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Bob Corker (R-Tenn.) is trying hard to get Dimon to bash regulation, but he's not biting.

Corker invites Dimon to scoff at the idea that regulators can catch losses like his, and Dimon agrees that they can't.

Corker twice invites Dimon to scoff at the idea that Dodd-Frank has made the financial system safer, and Dimon ultimately says, "I don't know."

Corker also asks him to defend gigantic, complex banks, and Dimon does that. He's providing services that America needs, gosh darn it, and if he didn't do it, somebody else would do it.

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Jack Reed (D-R.I.) asks why the CIO's risk model was changed, which happened to allow the CIO to take on more risk.

Dimon says risk models are changed all over the firm all the time, no big whoop. He says this wasn't done for "nefarious purposes," and they changed it back when they realized they were losing a bunch of money.

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@ BorowitzReport : In the time it's taking Jamie Dimon to testify he could be back at the office losing 4 billion dollars.

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Dimon says hedging should be allowed because you have "analytics to make sure you think it protects the company in a bad outcome." But he also just minutes ago said their models were wrong about how their derivative portfolio protected the company in bad outcomes.

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Finally, he gets asked about the Volcker Rule and how to distinguish between proprietary trading, which is forbidden by Volcker, and hedging, which is theoretically allowed.

He says, predictably, that you can't tell the difference. Everything the bank does is proprietary, he says -- lending money to firefighters, buying Treasury debt.

Yes, but. There's that, and then there's loading up on credit derivatives.

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Dimon gets asked what regulators should do, a ripe opportunity to thunder his usual warnings about the horrors of regulation. He passes.

He says the most important thing regulators can do is to raise capital requirements and liquidity standards, improve disclosures and good governance and such.

He says this won't stop mistakes, but will make them "smaller, fewer, farther between."

He also says "implementing all of Dodd-Frank" and international capital requirements and such will accomplish some of those things. So that's a change.

And Jamie Dimon loves -- no, lurves -- stress tests.

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He asks: What's to stop this from happening again, being a larger loss, or at weaker or less-well-capitalized institution?

Were we just lucky we found out about this one?

What is your assessment, oh great banker?

Dimon answers with the mushiest possible business-speak about how regulators should encourage "best practices," and Schumer lets it slide. Your watchdog in the Senate, New York.

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Check out some of Jamie Dimon's most notable quotes on regulation below: J
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  • Trading Loss 'Puts Egg On Our Face'

    Dimon said JPMorgan Chase's unexpected $2 billion loss on credit trades in May "<a href="http://www.huffingtonpost.com/2012/05/10/jpmorgan-chase-london-whale_n_1507662.html?ref=business" target="_hplink">puts egg on our face, and we deserve any criticism we get</a>."

  • Regulation 'The Nail In Our Coffin'

    In March 2011, Dimon expressed his fear over new regulations, warning that higher capital requirements would be "pretty much the nail in our coffin for big American banks," according to the <a href="http://www.ft.com/intl/cms/s/0/3157bcbe-5b05-11e0-a290-00144feab49a.html?ftcamp=rss#axzz1IB5kVGLG" target="_hplink">Financial Times</a>.

  • Losing Liquidity

    Warning that limiting proprietary trading would also affect market making, <a href="http://www.cnbc.com/id/45986077/Jamie_Dimon_Regulators_Undermining_Economic_Objectives" target="_hplink">Dimon was quoted by CNBC</a>, "The United States has...the most liquid [capital markets in the world]. If you lose liquidity because you lose market making, you cost investors money."

  • 'Little To Do With Financial Crisis'

    "Proprietary trading had very little to do with the financial crisis," <a href="http://www.gurufocus.com/news/159099/interview--jpmorgan-ceo-jamie-dimon-on-regulation-volcker-rule-some-of-the-global-regulations-are-unamerican)" target="_hplink">Dimon told FOX Business Network Senior Correspondent Charlie Gasparino</a> in January, adding that "you can't even make markets for your clients" with the Volcker Rule.

  • Volcker 'Doesn't Understand'

    "Paul Volcker by his own admission has said he doesn't understand capital markets," <a href="http://dealbook.nytimes.com/2012/04/06/what-volcker-rule-could-mean-for-jpmorgans-big-trades" target="_hplink">Dimon told FOX Business.</a> "He has proven that to me."

  • Volcker Rule Too Narrow

    in February, Dimon asserted the Volcker Rule had been written too narrowly. "If you want to be trading, you have to have a lawyer and a psychiatrist sitting next to you determining what was your intent every time you did something," he was quoted as saying in <a href="http://news.businessweek.com/article.asp?documentKey=1377-aIjS6U8zr2Z8-1PEFKF7I5P2SI88Q43D587IV8L" target="_hplink">Businessweek</a>.