JP Morgan CEO has argued that the Federal Reserve should be less concerned with adding new rules and more focused on fixing the underlying problems that led to the crisis in the first place.
Following the recent banking crisis, the industry has come under increased scrutiny. Regulators have introduced new rules and regulations to ensure that such a catastrophic event never happens again. The banking crisis instilled a lot of fear and mistrust in the banking industry. However, the CEO of JPMorgan, one of the world’s largest banks, has called for a change of approach, to focus on solving the problems that caused the crisis.
Required Proactive Measures
During a recent Bloomberg TV interview, JPMorgan Chase CEO and Chairman Jamie Dimon expressed concern that US banks could suffer further. He has stressed that the situation will likely get worse if the Federal Reserve over-regulates companies in response to crises. Instead, proactive measures should be taken to address problems in the banking sector.
Dimon’s comments come as JPMorgan Chase recently took over the failed First Republic Bank; the latter tweeted that “on Monday, JPMorgan Chase acquired a substantial majority of assets and assumed certain liabilities of First Republic Bank from the FDIC.”
According to Dimon, the current banking crisis is due to a lack of effective supervision. The bank’s CEOs and board members are solely to blame for the failure.
The Federal Reserve tends to focus on ensuring compliance with regulations, but Dimon argues that they need to take a more comprehensive approach to address underlying issues.
It should be remembered that during the banking crisis, the regional banks of the US were the most affected, particularly First Republic Bank, which required a rescue of 30,000 million dollars by the country’s large entities.
The Downside of Over-Regulation
Dimon has addressed that there is already a 200,000-page Federal Reserve stress test, which is not the solution to prevent future banking crises.
In addition, he has pointed out that more regulations make it harder for banks to conduct business and could create a false sense of security. This is why Dimon seems apprehensive about the effectiveness of stress tests, stating that focusing solely on a stress test could miss other issues. He suggests taking a different approach to addressing the underlying problems in the banking sector.
This is not the first time JPMorgan executives have raised concerns about banking regulations. JP Morgan Asset Management chief investment officer Bob Michele recently stated that First Republic Bank’s liquidity problems “should never have happened” as banking is the most highly regulated industry.
Last April, in his annual letter to JPMorgan shareholders, Dimon explained the following:
“Any crisis that damages the confidence of Americans in their banks damages all banks, a fact that was known even before this crisis. While it is true that this banking crisis ‘benefited’ the largest banks because of the entry of deposits they received from smaller institutions, the notion that this collapse was somehow good for them is absurd.”
“Of course, we hope that everything will work out and that all these storm clouds will dissipate peacefully and painlessly, and we must be prepared for that outcome. We must also be prepared for a new and uncertain future. The new risks (in addition to the normal ones, such as a recession) are higher inflation for longer, QT market effects, and rising political risks. Of course, I can’t be sure this will happen, but I give it more likely than market,” concluded Dimon.
By Audy Castaneda
