Ajit Karn
New York: While the present banking crisis is not as severe as that of 2008, it “is not yet over” and will be felt for years to come, said JPMorgan Chase CEO Jamie Dimon on Tuesday.
Dimon, who in coordination with Washington officials shaped the financial industry’s response to the crisis, wrote in his annual shareholder letter that recent bank failures “have significantly changed the market’s expectations… the stock market is down and the market’s likelihood of a recession has increased.”
Even though this is not comparable to 2008, it is unclear when the current crisis will conclude.
As he did in 2008, Dimon has played a crucial role in attempting to support the system, this time by bolstering First Republic Bank in the wake of the failures of Silicon Valley Bank and Signature Bank and the demise of Credit Suisse.
Although First Republic has stabilized somewhat since Dimon helped lead a $30 billion lifeline to the bank through a collaboration of 12 banks, the industry is not out of the woods yet, according to Dimon, who emphasized that the Fed may need to maintain high interest rates for a longer period of time than is currently anticipated.
“Storm clouds” include “higher inflation for a longer period of time, the market effects of (quantitative tightening), and growing political risks,” according to Dimon. “Of course, I cannot be certain that this will occur, but I give it better odds than the market.”
Dimon cautioned against retrograde federal regulation, describing the current Fed stress testing regime as “a mind-numbingly complex task of dotting i’s and crossing t’s.”
Dimon stated that the Fed did not assess for higher interest rates, a factor in recent failures.
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“It should be noted that the current regulations, supervisory regime, and resolution regime did not prevent SVB and Signature Bank from failing and causing systemic problems,” Dimon said.
“We should investigate the cause of this particular occurrence but not overreact.”
