The US banking crisis is ongoing and will have effects for years to come, JPMorgan Chase & Co chief executive Jamie Dimon wrote in a letter to shareholders sent Tuesday.
“The current crisis is not over yet, and even when it is behind us, there will be repercussions for years to come,” Dimon wrote in a 43-page annual message covering a range of topics from JPMorgan’s performance to geopolitics and regulation.
Storm clouds still threaten the economy as they did a year ago, said Dimon, chief executive officer of the largest US bank. And the banking system is under renewed stress following the failure of Silicon Valley Bank in UBS’s bailout of Credit Suisse last month.
“The chances of a market downturn have increased,” Dimon wrote. “And while this isn’t like 2008, it’s unclear when this current crisis will end. It has raised a lot of jitters in the market and will clearly cause financial conditions to tighten as banks and other financial institutions become more cautious.”
Even so, it’s unclear whether the crisis will dampen the consumer spending that drives the US economy, Dimon wrote.
The risks leading up to the current crisis were “hidden in plain sight,” Dimon wrote, citing interest rate exposure and the level of unsecured deposits at Silicon Valley Bank.
But he downplayed the similarities to the 2008 global financial crisis. While the crash of that period affected large banks, real estate lenders and insurance companies with global interconnections, “the current banking crisis involves far fewer financial players and fewer problems than they need to be fixed,” Demon said.
After taking the helm of JPMorgan in 2006, Dimon presided over the acquisitions of investment bank Bear Stearns and Washington Mutual, the largest bankruptcy in US history.
As the current crisis unfolded, Dimon again played a pivotal role, helping to provide a $30 billion lifeline for First Republic Bank of 11 major banks.
JPMorgan, Bank of America, Citigroup and Wells Fargo have pledged $5 billion each, followed by Morgan Stanley and Goldman Sachs with $2.5 billion each.
Any new legislation in response to the latest turmoil should be “considered,” including clearer rules for dealing with failing banks, Dimon wrote. “Irregular stress tests and constant uncertainty about future regulations hurt the banking system without making it safer.”
Dimon has also targeted non-bank finance companies, which have become increasingly competitive with banks in providing mortgages, credit cards and market creation.
“Would non-bank institutions that provide credit be able to provide credit when their customers need it most?” asked Demon. “Personally, I doubt many of them can.”
Source: Terra
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