Jamie Dimon, the CEO of JPMorgan Chase, has expressed his disappointment with a new US proposal to increase capital plans for banks. He’s concerned that this could lead to more lending in private credit markets and potentially have unintended consequences for the US economy.
He expressed his curiosity about the true objectives of the regulators who introduced the proposal in July, stating that he would like to understand their underlying goals and intentions.
Jamie has a history of criticizing regulatory approaches, particularly those that advocate for stronger capital plan levels. This stance isn’t new for him. Regulators had proposed these measures to prevent incidents like the ones in March, when three significant lenders faced financial difficulties, leading to depositors withdrawing their funds from institutions nationwide.
In July, Jamie Dimon informed analysts that nonbank lenders, who aren’t bound by the same capital plan regulations, were celebrating their competitive advantage and essentially “dancing in the streets.”
Frustrated with Basal III accord for Capital Plan
During a presentation at a Barclays conference in New York, Jamie Dimon reiterated some of his previous arguments. He pointed out that JPMorgan would be required to maintain 30% more capital than a European bank due to these regulations, a process that would extend until 2028 for full implementation. Jamie Dimon expressed frustration with the Basel III international accord and its implications for American banks. He questioned the original purpose of Basel III, stating, “What was the goddamn point of Basel in the first place?”
The proposed changes in July are expected to result in a 16% aggregate increase in capital plan requirements for affected banks. Regulators argue that this increase primarily impacts the largest banks and that most of them already possess sufficient capital to meet these requirements. The capital plan is a financial buffer for banks to absorb potential future losses.
These changes are part of the US adaptation of an international framework called Basel III. That was crafted in response to the 2008 financial crisis by the Basel Committee on Banking Supervision. The committee was formed under the auspices of the Bank for International Settlements in Basel, Switzerland. They aim to establish worldwide regulatory capital standards to ensure that banks maintain sufficient reserves to weather financial crises.
Although the last iteration of this accord was finalized in 2017, the rollout of these regulations in the US was postponed due to the COVID-19 pandemic.
When asked about his discussions with regulators regarding the proposed capital plan requirements, Dimon humorously remarked that “he had been on vacation” and was trying to distance himself from such matters. He emphasized his desire for regulators to make the right decisions but indicated that, in his view, they hadn’t done so in this case.
Jamie Dimon is Cautious about the Economy
Jamie Dimon also shared some cautionary remarks regarding the state of the economy. Although he acknowledged that the health of US consumers and businesses is still relatively good, he expressed his cautious stance, saying,
“I’m also quite cautious, in case you didn’t get it, about the environment. More cautious than other people. I think there’s more potential odds of accident of some sort than other people think.”
Furthermore, banks are grappling with competition to retain their depositors, especially when customers are seeking higher yields. This pursuit of higher yields translates into increased funding costs and narrower profit margins. Notably, a critical profitability metric, net interest income, has been diminishing for many regional banks.
Jamie Dimon noted the expectation that bank deposits will decrease and net interest income will decline to a new level, but the timing of these changes remains uncertain. This uncertainty reflects the challenges and shifting dynamics within the banking industry.
Shared Data about JPMorgan Chase
Jamie Dimon shared that JPMorgan Chase maintains its expectations for full-year net interest income, with a target of $87 billion.
In the third quarter, JPMorgan’s trading business is expected to see a slight decline of “1% or 2%” compared to the previous quarter and the same period last year, while investment banking is experiencing a similar trend.
JPMorgan is poised to benefit from a series of upcoming initial public offerings (IPOs), including chipmaker ARM and grocery e-commerce company Instacart, for which it serves as one of the lead bankers.
Dimon advised companies to consider going public sooner rather than later, emphasizing that waiting too long can be risky due to the substantial and uncertain challenges that lie ahead.