NEW YORK — JPMorgan CEO Jamie Dimon mentioned the U.S. and the banking trade ought to amend rules following the collapse of Silicon Valley Bank and Signature Bank final month, saying that the monetary system must be adjusted in order that one financial institution’s failure doesn’t “cause undue panic and financial harm.”
The feedback, made in Dimon’s letter to JPMorgan Chase shareholders Tuesday, have been his first for the reason that two banks failed. Dimon, the chairman and chief government of the nation’s largest financial institution, is a veteran of the 2008 monetary disaster, and one of many final senior executives remaining at a Wall Street agency for the reason that trade almost collapsed 15 years in the past.
Dimon mentioned in his letter there was loads of blame to go round for Silicon Valley Bank’s failure. The financial institution’s administration poorly dealt with the financial institution’s rate of interest threat by shopping for low curiosity authorities bonds and mortgages, leaving it too uncovered to the Federal Reserve’s rising rates of interest, he mentioned. Regulators just like the Fed didn’t adequately perceive the dangers in SVB’s stability sheet quickly sufficient to push the financial institution to regulate course earlier than it was too late.
Lastly Dimon partially blamed enterprise capitalists and the tech neighborhood, whose collective resolution to tug their cash out of SVB precipitated the financial institution to fail by way of a conventional financial institution run.
“The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep,” Dimon wrote.
“This is not to absolve bank management – it’s just to make clear that this wasn’t the finest hour for many players,” he added.
Dimon acknowledged in his letter what was seen anecdotally all through this disaster: depositors flocked to the nation’s largest banks that are seen as “too big to fail” which arguably offers them an implicit authorities backstop in occasions of panic. But Dimon mentioned the nation advantages from the existence of smaller banks and neighborhood banks as a result of they serve extra native populations that their greater rivals.
“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,” he mentioned.
Among Dimon’s proposed adjustments to rules is ensuring the Federal Reserve’s annual “stress tests” search for actual world points that might affect banks’ monetary well being. The Fed hasn’t executed a stress check on rising rates of interest in a number of years, Dimon mentioned, the precise situation that precipitated this financial institution panic within the first place.
“(Stress tests) have become an enormous, mind-numbingly complex task about crossing t’s and dotting i’s,” he mentioned.
Dimon’s annual letter to shareholders is usually a must-read for bankers, policymakers and the media as he sometimes goes into nice element in regards to the points dealing with the trade in addition to the U.S. and international economic system.
Source: www.bostonherald.com”