JPMorgan Chase Chief Executive Jamie Dimon said simply because some problems in the credit markets have been resolved does not mean market conditions won't get worse.
"I do think we have some very serious issues to face," he said. "Things could actually get worse."
Dimon, speaking at a mortgage lending forum sponsored by the Federal Deposit Insurance Corp, also said that investment banks should not be considered too big to fail and said the U.S. regulatory response to the credit crisis has been appropriate.
Dimon, whose bank is widely expected to acquire a U.S. regional bank, said an accounting rule requiring banks to mark assets to their current market value is a deterrent to merger activity.
FAS 157, as the rule is known, would force an acquirer to write down the value of assets from a target bank, even if those loans and securities were sound, to reflect current depressed market values. In some cases, Dimon said, a target bank could emerge with negative value under mark-to-market accounting, thereby forcing an acquirer to raise more capital.
Dimon said the future of the U.S. economy is bright but more short-term suffering is ahead. He said commercial banks, regional banks and jobs for the average American will be the next areas to experience significant stress.
As far as the U.S. regulatory response to the credit crisis, Dimon said the top officials have done well within their legislative limitations.
"I think the government is taking proper, in my opinion, monetary and fiscal policy at this point," he said.
In March, the Federal Reserve helped engineer a takeover of Bear Stearns by JPMorgan and guaranteed a $29 billion loan to facilitate the transaction, out of concern that a Bear Stearns bankruptcy could trigger a financial panic.
Dimon said the U.S. government was in a difficult position and didn't have the appropriate tools for an orderly liquidation of Bear Stearns' assets.
He said he supports an idea floated by banking regulators to allow the government to act as a receiver for a failing investment bank and set up a so-called bridge bank to liquidate it in an orderly manner.
A similar model currently exists for U.S. commercial banks.
"The government can take over the institution, wipe out the equity holders and then deal with secured debt in a way that's appropriate," he said. "It's complicated, but we need that option. They're not too big to fail."