Jamie Dimon said it’s time for regulators to help put an end to the turmoil in the banking industry, but he’s already predicting policymakers will take away the wrong lessons from this year’s upheaval.
“I think it’s going to get worse for banks — more regulations, more rules, and more requirements,’’ JPMorgan Chase & Co.’s chief executive officer said in a Bloomberg Television interview from Paris Thursday. “If you overdo certain rules, requirements, regulations — there are some of these community banks that tell me they have more compliance people than loan officers.’’
The only major bank CEO from the financial crisis still in command, Dimon has played a central role in the reaction to the industry’s worst period of tumult in more than a decade. He brought his typically blunt style to critiques of regulators and fellow bankers, spearheaded an industry lifeline to First Republic Bank, and ultimately stepped in to buy the lender last week when those efforts proved insufficient.
“We need to finish the bank crisis,’’ Dimon said. “Whatever the FDIC, the OCC, the Fed — whatever they need to do to make it better they should do.”
Four regional firms have collapsed amid steep Federal Reserve interest-rate hikes and deposit outflows. JPMorgan’s purchase of First Republic and Dimon’s declaration that “this part of the crisis is over” did little to quell investor concern about the strength of the industry. The KBW Regional Banking Index has dropped 13% since that deal was announced.
Banks should have been encouraged to look at a broader range of potential pitfalls, rather than one annual stress test that ran hundreds of thousands of pages, breeding a "false sense of security,” Dimon said. The Fed itself wasn't predicting interest-rate increases before it started hiking and then was surprised when banks also got caught wrong-footed, according to the CEO.
Dimon said regulators need to get a better handle on smaller banks’ financial situations, to “not be surprised constantly.”
While blame should be placed at the feet of bank CEOs and boards of directors, “I think there needs to be humility on the part of regulators,’’ Dimon said. “They should look at it and say, ‘OK, we were a little bit a part of the problem’ as opposed to just pointing fingers.’’
Despite the upheaval, the regional-bank industry is “quite strong,” he said, and “hopefully we’re getting near the tail end” of the problem.
Dimon joined a chorus of market participants who questioned the behavior of some short sellers, saying he believes the Securities and Exchange Commission should be looking at such activity for any “unscrupulous” tactics.
Dimon acknowledged that his own assessment is at odds with members of his staff, who have told the chief executive that their analysis of short sales shows that such activity isn’t to blame for the drop in regional-bank share prices. He also said there's no real evidence of pervasive short-selling in smaller lenders' shares.
Still, he said, “If people are in collusion or people are going short and making a tweet about a bank, they should go after them, and vigorously,'' Dimon said. “They should be punished to the fullest extent as the law allows it.”
In the wide-ranging interview, Dimon touched on his firm's preparations for a potential US default as well as his assessment of the state of US-China relations. The chief executive also offered a sober warning about the likelihood that losses on commercial real estate loans will lead to more regional bank failures.
“It may take a few banks down, that's normal stuff,” Dimon said, adding that some metropolitan areas, including Nashville, Tampa, and Orlando, should fare better than cities such as Chicago, New York, and Seattle. “That isn't abnormal.”
Dimon said US leaders should avoid turning to measures that would limit trade with China as investors have grown increasingly worried about the impact of potential Chinese activity in Taiwan —- as well as the prospect of provocative steps by the US to defend the island. Group of Seven nations is aiming to send a signal to China this month by announcing a joint effort to counter “economic coercion,” but are struggling to agree on tangible measures.
“America and China have a lot of common interests -- climate, nuclear proliferation, anti-terrorism, global stability,” Dimon said. “And we have differences. We're capitalists, they're not. It's OK. We can sort it out.''
Dimon, who has long advocated for the elimination of the US debt ceiling, said JPMorgan has convened a weekly war room to plan how the country's largest lender would react to a potential default. Those meetings will probably happen more often, potentially multiple times a day, if the standoff persists this month, he said.
“It affects contracts, collateral, clearinghouses, clients – it affects clients differently around the world,” Dimon said. “It’s very unfortunate. It should never happen this way.”
Big banks have been largely immune to the pressures plaguing their smaller rivals with JPMorgan’s shares slightly higher this year. The bank reported an unexpected jump in deposits in the first quarter in a flight to safety, and it outbid other lenders for First Republic after the San Francisco-based firm became the second-biggest bank failure in US history.
Dimon, 67, has spearheaded acquisitions throughout his 17 years at the helm of JPMorgan, including the purchase of most of Washington Mutual, whose 2008 collapse is the only one bigger than First Republics. Now he can capitalize on First Republic’s relationships with rich customers to further his goal of expanding JPMorgan’s wealth-management offerings, which he has called “one of our greatest opportunities.”
But to realize that ambition, Dimon will first have to contend with an exodus of First Republic advisers who left as its troubles mounted this year. Hours after winning the bidding, Dimon joined a call with the roughly 230 remaining wealth advisers to pitch them on staying with JPMorgan.
Dimon spoke from a JPMorgan conference in Paris, where the firm has more than 500 markets staff — a 22-fold increase from 2019, before Brexit took effect. Before that, London had been the undisputed nexus of European finance, but in recent years the landscape has become more fragmented and Paris has emerged as a key hub.
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