Jamie Dimon slams US regulators for bank failures ‘hiding in plain sight’

Jamie Dimon said the latest US banking crisis “wasn’t the finest hour” for policymakers and regulators who should have seen risks that were “hiding in plain sight.”

In his annual letter to shareholders — a closely watched missive long considered required reading on Wall Street — the JPMorgan Chase CEO hit out at US banking regulators for giving lenders such as Silicon Valley Bank incentives to stock up on Treasury bonds whose value tanked 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.

Silicon Valley Bank invested deposits in long-term Treasuries which generated substantial paper losses due to rising interest rates — triggering a run on the bank.

The San Francisco Fed, which is responsible for supervising lenders in much of the Western US, has been pilloried for failing to adequately monitor the bank and order it to take corrective action.

“This is not to absolve bank management — it’s just to make clear that this wasn’t the finest hour for many players,” Dimon wrote in a letter to shareholders.

“All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them,” Dimon wrote.

According to Dimon, the collapse of Silicon Valley Bank and Signature Bank of New York is only the beginning of the latest US banking crisis — but said it won’t be like 2008 and that regulators shouldn’t overreact.

“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” Dimon, who heads the nation’s largest bank, wrote in a letter to shareholders on Tuesday.

Dimon wrote that any new regulations resulting from the crisis should be “less academic” and “more collaborative.”

Dimon said the banking turmoil coupled with macroeconomic stressors make it more likely that the economy is headed for contraction — though he did stress that it would not be as tumultuous as the 2008 financial crisis.

“The market’s odds of a recession have increased,” Dimon wrote.

“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.”

While the 2008 crash hit large banks, mortgage lenders and insurers with global interconnections, “this current banking crisis involves far fewer financial players and fewer issues that need to be resolved,” Dimon wrote to shareholders.

Dimon, who was the point man in 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.

“Any crisis that damages Americans’ trust in their banks damages all banks — a fact that was known even before this crisis,” the JPMorgan boss wrote.

“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,” Dimon wrote. 

Dimon warned lawmakers and regulators to think twice before enacting further restrictions on the banking system in response to the collapse of SVB, Signature Bank of New York, and Credit Suisse, which was acquired in an emergency deal by rival UBS.

“The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient,” Dimon wrote.

“Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves.”

After taking the helm of JPMorgan in 2006, Dimon presided over the bank’s crisis-era acquisitions of troubled investment bank Bear Stearns and Washington Mutual, the savings and loan whose failure was the largest in US history.

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.”

Dimon also noted that “supply chains are recovering, businesses are pretty healthy and credit losses are extremely low.”