JPMorgan Chase chief executive Jamie Dimon said the current banking crisis is “not yet over”, as he took aim at the US Federal Reserve’s role in the collapse of Silicon Valley Bank.
However, he also noted that the sector is still a long way away from the events of the Global Financial Crisis.
In his annual letter to shareholders, Dimon noted that the timing of the US banking behemoth’s report this year comes soon after the financial sector was shaken by the collapses of Silicon Valley Bank and Credit Suisse.
“As I write this letter, 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 said.
The crisis, he said, had many causes, but he argued that the Federal Reserve was among those who should take a share of the blame.
“Most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity portfolios and the amount of SVB’s uninsured deposits were always known – both to regulators and the marketplace,” he said.
“Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements. Even worse, the stress testing based on the scenario devised by the Federal Reserve Board never incorporated interest rates at higher levels.”
Yet Dimon also noted that investors shouldn’t panic, as anty issues that remain in the current system would not have the same kind of knock-on effects that the collapse of the mortgage market in 2008 had.
“Importantly, recent events are nothing like what occurred during the 2008 global financial crisis (which barely affected regional banks),” Dimon said. “In 2008, the trigger was a growing recognition that $1 trillion of consumer mortgages were about to go bad – and they were owned by various types of entities around the world.
“At that time, there was enormous leverage virtually everywhere in the financial system. Major investment banks, Fannie Mae and Freddie Mac, nearly all savings and loan institutions, off-balance sheet vehicles, AIG and banks around the world – all of them failed.
“This current banking crisis involves far fewer financial players and fewer issues that need to be resolved.”
