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Wednesday, November 29, 2023

Jamie Dimon, CEO of JPMorgan, Warns That The Banking Crisis Is Still Ongoing

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The head of the country’s largest bank has cautioned that the crisis affecting the US banking system “is not yet over.”

Just weeks after the dramatic failure of two major US banks, JPMorgan Chase CEO Jamie Dimon made the remarks in an annual letter to shareholders.

Noting that it “involved fewer players and fewer issues,” he stated that he did not anticipate the unrest to result in a global crisis comparable to 2008.

But he forewarned that the effects would last.

Even though this is not 2008, it is unclear when the current crisis will come to an end, he said. There will be effects from it for years to come, even after it is over.

Wall Street veteran Mr. Dimon led JPMorgan through the 2008 financial crisis, when exposure to subprime mortgages in the US led to issues with the entire global financial system.

Recently, he collaborated with government representatives to develop a rescue strategy for the First Republic bank in California, which many people feared was also in danger of failing.

He claimed that in the near future, the collapses of Silicon Valley Bank and Signature Bank as well as the hasty acquisition of Credit Suisse in Europe had caused “lots of jitters in the market” and were likely to cause lenders to hold back in the months to come, raising the likelihood of an economic recession.

However, he noted that it was unclear whether the crisis would have an impact on US regular consumers, who are responsible for driving the world’s largest economy.

Although the current crisis has revealed some systemic flaws, he wrote that it should not be compared to what we went through in 2008.

Last month, SVB failed after customers withdrew nearly a quarter of the company’s deposits in a short period of time due to concerns about its financial stability, outpacing the company’s capacity to provide the funds. In response to indications of a similar bank run, regulators closed down Signature.

As a result of the failures, other potentially troubled companies came under scrutiny, and as a result, Credit Suisse’s shares fell. As a result, rival UBS quickly acquired it in a deal mediated by the Swiss government.

The recent turmoil, according to Mr. Dimon, should prompt regulators to closely examine the risks to banks posed by having a sizable portion of uninsured deposits or a sizable number of clients with similar profiles, such as SVB, which was well-known for serving the tech industry.

However, he added that many of the risks had been “hiding in plain sight” and included a sharp increase in interest rates last year that had hurt the value of some types of assets typically held by banks. He criticized regulators for failing to take rate increases into account when conducting tests to determine the stability of banks.

This is not intended to excuse bank management; rather, he said, “I just want to make it clear that this wasn’t everyone’s finest hour.”

US President Joe Biden cautioned against “knee-jerk, whack-a-mole or politically motivated responses” as he and others called for stricter banking regulations.

He said, “We should carefully examine why this specific circumstance occurred but not overreact.”

Erratic capital requirements for stress tests and ongoing uncertainty about upcoming regulations hurt the banking system rather than making it safer, he continued.

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