JP Morgan CEO Jamie Dimon Says US Banking Crisis Not Over, “Repercussions for Years to Come”
Jamie Dimon, chairman and chief executive officer of JP Morgan Chase delivered a harsh warning on US banks in his annual letter to shareholders on Tuesday.
The jitters surrounding the collapse of Silicon Valley Bank (SVB) and Signature Bank, as well as Credit Suisse, were caused by risks “hiding in plain sight” and “this wasn’t the finest hour for many players,” he wrote in a wide-ranging, 43-page report addressing the banking crisis, geopolitical risks, artificial intelligence, regulation and more.
Dimon addressed US banking regulators for giving SVB incentives to accumulate US Treasury bonds, the value of which crashed as the Federal Reserve hiked interest rates.
“Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements,” Dimon wrote. SVB invested deposits in long-term Treasuries, which generated substantial paper losses due to rising interest rates, triggering a bank run.
According to Dimon, the collapse of SVB and Signature Bank of New York is only the beginning of the latest US banking crisis. “The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” he warned. But he said it won’t be like 2008 and that regulators shouldn’t overreact.
“The market’s odds of a recession have increased,” Dimon added. “And while this is nothing like 2008, it is not clear when this current crisis will end. It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative.”
Dimon, who spearheaded the effort by large banks to pool together $30 billion to help troubled regional lender First Republic Bank, said that shoring up the balance sheets of smaller banks was vital to maintaining the financial health of the nation’s entire lending system.
Dimon did sound an optimistic note about the US economy, citing “10 years of home and stock price appreciation” as well as wages that are “going up, particularly at the low end.” He told shareholders that “even if we go into a recession, consumers would enter it in far better shape than during the great financial crisis.”