Jamie Dimon, the chief govt of JPMorgan Chase, who lately rallied fellow financial institution leaders to the rescue of smaller rivals, devoted loads of ink to the banking disaster in his annual letter to shareholders on Tuesday.
“As I write this letter, the present disaster shouldn’t be but over, and even when it’s behind us, there shall be repercussions from it for years to return,” Mr. Dimon wrote within the letter, which is adopted intently on Wall Road.
Final month, Mr. Dimon corralled $30 billion in funds from JPMorgan and different large banks to deposit at First Republic, a midsize lender that had struggled with speedy withdrawals and a plunge in its inventory worth after the collapse of Silicon Valley Financial institution and Signature Financial institution spooked the market.
In diagnosing the origins of the current turmoil, which Mr. Dimon mentioned was “nothing like what occurred in the course of the 2008 international monetary disaster,” he mentioned essential dangers lurking on banks’ stability sheets have been “hiding in plain sight.” Silicon Valley Financial institution’s company purchasers, for example, “have been managed by a small variety of enterprise capital firms and moved their deposits in lock step,” he wrote.
Rules have been additionally partly in charge, he mentioned, noting that required stress exams did not bear in mind quickly rising rates of interest. He added that guidelines on capital necessities had inspired banks to load up on authorities bonds, which have dropped in worth as charges have risen and threatened to saddle lenders with massive losses just like the one which rattled depositors at Silicon Valley Financial institution.
Inflation F.A.Q.
What’s inflation? Inflation is a lack of buying energy over time, which means your greenback won’t go as far tomorrow because it did at present. It’s sometimes expressed because the annual change in costs for on a regular basis items and companies akin to meals, furnishings, attire, transportation and toys.
“This isn’t to absolve financial institution administration — it’s simply to clarify that this wasn’t the best hour for a lot of gamers,” Mr. Dimon wrote. “All of those colliding elements grew to become critically essential when {the marketplace}, score companies and depositors targeted on them.”
Banking regulators confronted skeptical questioning at congressional hearings final week, prodded on why they’d not completed extra to cease Silicon Valley Financial institution from imploding.
President Biden has known as for elevated scrutiny of banks with $100 billion to $250 billion in belongings, like Silicon Valley Financial institution. The Federal Reserve is investigating the way it did not cease vulnerabilities on the financial institution, which might end in tighter regulation and supervision.
Mr. Dimon, who has lengthy taken challenge with some of the complexities of economic rules imposed after the 2008 monetary disaster, cautioned towards “knee-jerk, whack-a-mole or politically motivated” rule-making in response to the present tumult.
Mr. Dimon mentioned it “mustn’t at all times be about roughly regulation” however ought to quite be about the correct mix of guidelines, which additionally bear in mind elements akin to buyer focus, uninsured deposits and limitations to accounting practices which have come to mild after the current financial institution collapses.
Perceive Inflation and How It Impacts You
Turning to the broader financial system, Mr. Dimon mentioned “jitters” would “clearly trigger some tightening of economic situations as banks and different lenders change into extra conservative.” Though stricter lending practices could have the identical dampening impact on the financial system as greater rates of interest, for now the financial system is in “fairly good” form, Mr. Dimon mentioned.
“Even when we go right into a recession, customers would enter it in much better form than in the course of the nice monetary disaster,” Mr. Dimon wrote.
The chief of the nation’s largest financial institution additionally rejected the notion that the travails of smaller lenders has been good for JPMorgan. “Whereas it’s true that this financial institution disaster ‘benefited’ bigger banks because of the influx of deposits they obtained from smaller establishments, the notion that this meltdown was good for them in any approach is absurd,” he mentioned.
