JPMorgan’s Jamie Dimon says banking crisis is not over yet

Jamie Dimon, the longtime CEO of JPMorgan Chase, said of the latest financial shock in his annual letter: “The current crisis is not over yet, and even when it’s behind us, there will be repercussions from it for years to come. next.” “But importantly, recent events are nothing like what happened during the global financial crisis of 2008,” he added in the letter released on Tuesday. The latest banking woes in the US began with the collapse of Silicon Valley Bank, which was shut down by regulators on March 10 as depositors withdrew tens of billions of dollars from the bank.

Jamie Dimon, President, CEO and Chairman of JP Morgan Chase, speaking at the Squawk Box at WEF in Davos, Switzerland on January 19, 2023.

Adam Galica | CNBC

Financial sector stress caused by two bank failures in the United States last month is still a threat and needs to be addressed by a reimagining of the regulatory process, according to JPMorgan Chase CEO Jamie Dimon.

“As I write this letter, the current crisis is far from over, and even when it is behind us, there will be repercussions from it for years to come,” the longtime CEO said in his annual letter to shareholders on Tuesday.

“But more importantly, recent events are nothing like what happened during the global financial crisis of 2008,” he added.

The latest US banking woes began with the collapse of Silicon Valley Bank, which was shut down by regulators on March 10 after depositors withdrew tens of billions of dollars from the bank. The smaller Signature Bank closed two days later. And in Europe, Swiss regulators brokered a takeover of Credit Suisse by UBS.

JPMorgan and other big banks stepped in to make $30 billion in deposits into First Republic, another regional bank that investors feared could become the next SVB.

The stress on regional banks has led investors and analysts to suggest that “too big to fail” banks would be beneficiaries of the crisis, but Dimon said JPMorgan wants to strengthen smaller banks for the good of the entire financial system.

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JPMorgan Chase, 1-year

“Any crisis that hurts Americans’ confidence in their banks hurts all banks – a fact that was known even before this crisis. While it is true that this banking crisis ‘benefited’ the largest banks due to the flow of deposits they received from smaller institutions. the notion that this merger was good for them in any way is absurd,” Dimon wrote.

Dimon also warned against knee-jerk changes to the regulatory system. He wrote that most risks, including 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 associated stress on the banking system, highlight that simply meeting regulatory requirements is not enough. Risks are many and managing these risks it requires constant and watchful observation as the world evolves,” Dimon wrote.

Instead, JPMorgan’s CEO called for more forward-looking regulation. He noted that the held-to-maturity bonds that have become a problem for many banks are actually senior government debt that scores well under current rules, and that recent stress tests have not seen a rapid rise in interest rates.

“This is not to exonerate the bank’s management – it is simply to make clear that this was not the best hour for many players. All these colliding factors became extremely important when the market, rating agencies and depositors focused to them,” Dimon wrote.

Dimon said regulation should be “less academic, more collaborative” and that policymakers should be more wary of the potential push of some financial services toward nonbanks and so-called shadow banks.

Two other broad topics that Dimon touched on, in addition to JPMorgan’s financial results, were the need for investment in climate technology and resiliency programs and the rise of artificial intelligence.

Dimon said there needed to be more urgency on many different levels to accelerate the development of green technology, raising permitting reform and eminent domain as two areas to consider.

“To accelerate progress, governments, businesses and nongovernmental organizations must align on a series of practical policy changes that comprehensively address the fundamental issues holding us back,” Dimon wrote.

And on AI, which has risen to the top of investors’ minds since OpenAI’s ChatGPT launch in November, Dimon said JPMorgan already has hundreds of use cases for AI in production, but stressed the importance of being careful with the technology.

“We take the responsible use of AI very seriously and have an interdisciplinary team of ethicists who help us prevent unintended misuse, anticipate regulation, and promote trust with our clients, customers and communities,” the CEO wrote.

The shareholder letter comes after a difficult year for markets, with major U.S. averages falling into bear markets in 2022. Dimon called it a challenging year for the world, citing the war in Ukraine and rising geopolitical tensions with China.

However, the CEO said 2022 was “somewhat surprisingly” strong for JPMorgan. The bank’s shares fell 15% during the calendar year, but it generated more than $37 billion in net income.