Jamie Dimon, the CEO of JPMorgan Chase, testified during the Senate Banking, Housing, and Urban Affairs Committee hearing titled “Annual Oversight of the Nation’s Largest Banks” in the Hart Building on September 22, 2022.
Image: Tom Williams | CQ-Roll Call, Inc. | Getty Images
JPMorgan Chase executives warned on Friday that stricter regulations following a series of bank failures this year would increase costs for consumers and businesses. These regulations would also compel lenders to exit certain businesses altogether.
When asked by
Wells Fargo analyst Mike Mayo about the impact of proposed changes by Federal Reserve Vice Chair for Supervision Michael Barr in a speech earlier this week, JPMorgan CEO Jamie Dimon stated that other financial players could potentially benefit from these changes.
“This is great news for hedge funds, private equity, private credit,
Apollo
,
Blackstone
,”
Dimon said, referring to two of the largest private equity players. “They’re dancing in the streets.”
Blackstone and Apollo have not responded immediately to requests for comment on Dimon’s remarks.
Banks are facing requirements to hold more capital to protect against risky activities, as mandated by both U.S. and international regulators. After the sudden collapse of Silicon Valley Bank in March, authorities are proposing higher capital requirements for banks with assets of at least $100 billion. These proposals coincide with the introduction of long-awaited international rules known as Basel III endgame, which were developed in response to the 2008 financial crisis.
Rise of the shadow banks
“How much business would leave JPMorgan or the industry if capital ratios were to increase as much as proposed?” Mayo asked.
CFO Jeremy Barnum explained that banks would first raise prices on loans and other products for end users before considering exiting certain areas entirely.
“If we have pricing power and the higher capital requirements prevent us from generating the appropriate returns for shareholders, we will try to adjust the pricing and evaluate its impact,” Barnum said.
“If repricing is unsuccessful, then in some cases, we will have to reconsider and potentially exit certain products and services,” he added. “This would likely result in those products and services moving outside of the regulated perimeter.”
Following the 2008 financial crisis, banks were compelled to reduce their involvement in activities such as mortgages and student loans. As for corporations and institutional players, they increasingly rely on private equity players like Blackstone and Apollo for acquisitions and large loans.
This trend has contributed to the emergence of non-bank players, sometimes referred to as the “shadow banking” industry. Financial experts have expressed concerns about this industry as these players typically face lesser federal scrutiny compared to banks.
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