Former Federal Reserve Chairman Alan Greenspan isn't worried by the size of the losses at JPMorgan's chief investment office. His reaction: "So what?"
For a bank with almost $200 billion in equity, a one- or even two-percent loss isn't very significant, Greenspan said in an interview last week.
Greenspan was on the board of JPMorgan from 1977 to 1987 and holds the company in high regard.
While on the surface the loss sounds large, its impact on JP Morgan’s earnings is likely to be less-than catastrophic, Greenspan said. The company is still expected to report a profit when it announces quarterly earnings in July.
Banks will continue to lose money from time to time as they perform their core function of allocating idle savings and unproductive capital to more thriving and growing areas of the economy, Greenspan said.
JPMorgan CEO Jamie Dimon goes to testify on Capitol Hill next week. Greenspan expects lawmakers to focus on how the activities that led to the losses fit into the bank's role of fueling the economy.
“My point is that you have to recognize that banks will lose money on occasion,” Greenspan said, “because that’s the way the system eliminates unproductive capital. Implicit in creating growth and productivity comes some degree of failure. If you have banks that are ‘too big to fail’, it implies you are using the government as a buttress to prop up otherwise unproductive failing institutions."