JP Morgan boss Jamie Dimon warns ‘crisis not yet over’ and against ‘knee-jerk’ response from regulators
Jamie Dimon said today that the banking crisis is not yet over as he warned the regulators against making a “knee-jerk” response to the crisis.
In a letter to shareholders, he wrote “the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
The collapse of Silicon Valley Bank (SVB) last month sent shockwaves around the financial system, sparking fears that the world could be on the brink of another financial crisis.
While Dimon stressed the current crisis is “nothing like 2008,” he said it was “not clear when this current crisis will end”. He also noted that it would have knock-on effects for the wider economy.
“It (the crisis) has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative,” he wrote.
But Dimon warned regulators against making “knee-jerk, whack-a-mole or politically motivated responses”.
Many commentators have pointed out that regulations were loosened on regional banks such as SVB back in 2018. The changes to the regulation took SVB out of tighter capital controls, with commentators arguing that tighter rules could have prevented the collapse.
He said the disruption stemmed from risks “hiding in plain sight”, such as interest rate exposure and the ratio of uninsured deposits in banks.
In fact Dimon argued that it was unlikely any regulatory reforms would not have made a difference to the collapse of Silicon Valley Bank and Signature.
“The debate should not always be about more or less regulation but about what mix of regulations will keep America’s banking system the best in the world,” Dimon said.
Looking further, Dimon criticised how US regulators helped to lay the groundwork for the crisis, pointing out that governments have incentivised banks to stock up on government bonds.
In addition, Dimon noted the Fed’s stress tests failed to take into account interest rate risk.
“This is not to absolve bank management – it’s just to make clear that this wasn’t the finest hour for many players,” he wrote.
Dimon said that regulators need to “deeply think through and coordinate complex regulations to accomplish the goals we want, eliminating costly inefficiencies and contradictory policies.”
Regulators should not aim for a regime that eliminates all failure, Dimon said, but “one that reduces the chance of failure and the odds of contagion.”