JPMorgan Chase & Co (NYSE:JPM) chief executive Jamie Dimon has warned that the US banking crisis is far from over and it should be addressed by a reimagining of the regulatory process.
"Any crisis that damages Americans' trust in their banks damages all banks - a fact that was known even before this crisis. While it is true that this bank crisis 'benefited' larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd," Dimon said in his annual letter to the bank's shareholders on Tuesday.
“As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” Dimon said. “But importantly, recent events are nothing like what occurred during the 2008 global financial crisis,” he added.
The recent banking issues in the US began with the collapse of Silicon Valley Bank (SVB), which was closed by regulators on March 10 as depositors pulled tens of billions of dollars from the bank. The smaller Signature Bank was closed two days later. And in Europe, Swiss regulators brokered a purchase of Credit Suisse by UBS.
JPMorgan and other large banks stepped in to make $30 billion of deposits at First Republic, another regional lender that investors feared could become the next SVB.
The stress on the regional banks has led investors and analysts to suggest that the “too big to fail” institutions would be a beneficiary of the crisis, but Dimon said JPMorgan wants to strengthen the smaller banks for the benefit of the whole financial system.
Dimon also cautioned against knee-jerk changes to the regulatory system. He wrote that most of the risks, including the potential losses from held-to-maturity bonds, were “hiding in plain sight”. The interconnected network of SVB’s deposit base was the unknown variable, he said.
“The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves,” he added.
The JPMorgan CEO instead called for more forward-looking regulation. He pointed out that the held-to-maturity bonds that have become problems for many banks are actually highly rated government debt that scores well under current rules, and that recent stress tests did not include a rapid rise in interest rates.