The CEO of J.P. Morgan criticizes regulators' emphasis on banks' capital levels as misguided. He highlights the economic costs of regulation and warns against underestimating the US debt problem.
J.P. Morgan CEO and Chairman Jamie Dimon is already considered a legend. The 68-year-old successfully guided his bank through the 2008 financial crisis. At that time, J.P. Morgan, much like UBS in the spring of 2023, was among the banks that took over struggling financial institutions with the blessing of authorities.
Given his track record and vast experience, Dimon is one of the most prominent critics in the fight against excessive banking regulation. In an interview with «NZZ» published on Wednesday, he speaks candidly.
No Alternative to the Credit Suisse-UBS Merger
Dimon believes there was no alternative to the forced merger of Credit Suisse (CS) with UBS, «because CS was such a big bank.» He also doubts that a resolution (for too-big-to-fail banks) would have been feasible. «I they did the right thing in Switzerland to minimize the damage.» Detailed resolution plans for large banks would never work as intended and wouldn’t be applied in a crisis.
While there are many lessons to be learned from the failure of CS, Dimon argues that the hyperfocus on capital and governance is misguided.
«More Capital»: An Oversimplified Demand
Dimon addresses the ongoing debate over whether stricter capital requirements for banks restrict their lending and harm the economy. In the US, stricter regulations have led to increased risks among mortgage brokers and growth in the private debt market. «Companies are being driven out of the public markets and are increasingly being held in private hands. This is what all these rules, regulations and guidelines from the regulators are doing.»
Dimon acknowledges that banks need enough capital and liquidity to be safe and agrees with the regulators’ mantra that taxpayers should not bear the burden of a bank’s failure. However, he states, «It's very easy for people who don't know what we're talking about to simply demand ‹more capital.› But most banks have no capital issue whatsoever.» He questions the societal cost if these funds are not invested in the real economy.
«Time to Revamp the Entire System»
Dimon calls for a fundamental rethinking of how to handle banking crises: «It is time to revamp the entire system. I think that's doable, but not in the way we are currently going about it. We’re just adding layers of rules and regulations and capital.»
When asked if he would consider running as a potential replacement candidate for Joe Biden, Dimon remains diplomatically reserved: «I'm hoping that the next president, whoever it is, reaches out to all Americans and brings in some capable people in the new government, some real experts across the fields.»
The next president, regardless of who it is, must address the US debt problem. The net debt equals the entire annual economic output of the US, and the deficit is larger than ever in peacetime. Dimon admits that he doesn't know if this is too much. «But we shouldn't find out, and we shouldn't be forced to by the market – that would be the worst way to go.»
