Regulators and banks should develop a system whereby lenders go bust without damaging the world economy to help restore public trust in the industry, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said.
“We’ve got to get rid of too big to fail,” Dimon, 56, told investors during a panel discussion in the German town of Koenigstein, near Frankfurt, Monday.
“We have to ensure big banks can be taken down without harming the public and at no cost to them.”
Governments and central banks propped up banks with trillions of dollars to prevent further shocks to the financial system and ensure the flow of credit to the economy following the collapse of Lehman Brothers Holdings Inc. in 2008.
Regulators are pushing banks to strengthen capital reserves and liquidity to help them weather financial shocks and avoid taxpayer-funded rescues.
“There’s still the presumption that we can’t let some global banks go to the wall,” Deutsche Bank co-CEO Anshu Jain said at the same panel. Some countries such as Spain don’t feel confident enough to allow smaller lenders to fail, he said.
Deutsche Bank is Europe’s largest bank with 2.19 trillion euros ($2.92 trillion) in assets under locally applicable accounting rules, company filings show. JPMorgan is the biggest U.S. bank with $2.36 trillion of assets under U.S. rules that allow the netting of derivates, data compiled by Bloomberg show. Deutsche Bank has 1.28 trillion euros of assets under that system, according to the company.
“Size alone is not the real issue,” Nikolaus von Bomhard, CEO of Munich Re, the world’s largest reinsurer, said on the panel. Banks need sufficient capital to back up their operations and should cease to offer products that their regulators don’t understand, he said.
Dimon said that while a bank the size of JPMorgan can be wound down at no cost to the taxpayer, coordination among regulators in different countries is necessary because of businesses that stretch across borders.
New liquidity and capital requirements known as Basel III are taking banks to a “very good destination,” Jain, 50, said.
Dimon said he disagreed with parts of Basel III, such as the definition of the securities that banks may count as easy- to-sell liquidity reserves. The capital surcharge for the world’s biggest banks “was not well done,” he said.
While JPMorgan’s $6.2 billion trading loss last year was “embarassing,” the bank has delivered three years of “record” profit, he said.
“It was one of the stupidest things I’ve seen,” Dimon said. “I’m mostly sorry to my shareholders. But JPMorgan is not obviated by a mistake.”
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