Jamie Dimon is placing some of the blame for the recent banking crisis on federal regulators but emphasized that many parties dropped the ball in the lead-up to Silicon Valley Bank’s collapse.
The longtime JPMorgan Chase CEO said in his annual letter to shareholders on Tuesday that the risks at places such as SVB and Signature Bank should have been more apparent to the government.
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“Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known – both to regulators and the marketplace,” he wrote.
Dimon said that the unknown risk was that SVB’s thousands of corporate clients were controlled by a small number of venture capital firms that “moved their deposits in lockstep.” The JPMorgan chief said that it isn’t likely any recent change in regulatory requirements would have stopped what followed.
Dimon noted that “the stress testing based on the scenario devised by the Federal Reserve Board (the Fed) never incorporated interest rates at higher levels."
“This is not to absolve bank management – it’s just to make clear that this wasn’t the finest hour for many players,” he added. “All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them.”
Dimon made a point of emphasizing that the “crisis” isn’t over yet for the banks. He said that even when it does come to an end, there will continue to be repercussions for years to come. Still, he said the current situation in the banking and financial systems are nothing like what occurred during the 2008 financial crisis, which resulted in the worst recession since the Great Depression.
“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,” Dimon said. “This current banking crisis involves far fewer financial players and fewer issues that need to be resolved.”
The banking situation has added pressure to the economy, which is already struggling under the weight of rising interest rates. The fear and uncertainty have even begun spreading to the larger global banking system.
Switzerland-based megabank Credit Suisse began faltering last month after the chairman of Saudi National Bank, the bank’s biggest shareholder, announced it would not be increasing its stake amid the SVB fallout.
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UBS then agreed to buy out its fellow Swiss competitor with support from Swiss authorities. Under the terms of the proposed purchase, UBS agreed to purchase Credit Suisse for just over $3 billion, just a fraction of the firm’s estimated value.
“The failures of SVB and Credit Suisse have significantly changed the market’s expectations, bond prices have recovered dramatically, the stock market is down and the market’s odds of a recession have increased,” Dimon said. “And while this is nothing like 2008, it is not clear when this current crisis will end.”