Regulatory policies are badly undermining the economic objectives of governments around the globe by hampering bank activity, JPMorgan Chase chief executive Jamie Dimon said in a conference call discussing fourth-quarter earnings Friday morning.
“Regulatory policy is completely contradictory to government objectives,” Dimon said, citing restrictions on trading and new capital regulations as regulatory sources of slower economic growth.
Dimon said that although regulators have provided additional clarity on new capital rules, the clarifications are have demonstrated that the capital rules are “bad.”
He noted that higher capital requirements have made risk weighting even more important for banks. Under international capital standards, different kinds of bank assets receive different capital treatment, a practice known as risk weighting.
“There are assets that we’re going to put on that have very good RWA returns. We’re going to be more sensitive to that,” Dimon said, using a banking shorthand for “risk weighted assets.”
One casualty of the new risk weighting will be interbank lending. Regulators have proposed high capital set cushions for short-term lending between financial institutions, hoping to reduce systemic risk.
“There will be no interbank lending ever again,” Dimon said.
He said that JPMorgan Chase still finances banks through secured lending, but short-term interbank lending is over.
Dimon also criticized the so-called Volcker rule banning proprietary trading. He warned that if the rule is not carefully crafted, it could limit not just prop trading but market making.
“The United States has the widest and deepest and most transparent capital markets in the world,” Dimon said. “And the most liquid. If you lose liquidity because you lose market making, you cost investors money.”
He said that pension funds, retirees, and other large investors could lose out if restrictions on trading go too far.
“We have to be very careful that we don’t destroy that [market making] as we try to limit — put a fair limit — on proprietary trading,” Dimon said.
Dimon did praise the recent actions by the European Central Bankto provide loans against a wider range of collateral to Europe’s banks.
“What the ECB did, was a very powerful thing. You can make the case that it eliminated the chance of a bank failure for this year at least,” Dimon said.
European banks are still selling assets to make it easier to meet rising capital requirements, Dimon said, but the disorderly deleveraging that many feared would take place has been avoided so far.
“Banks still have to increase capital. So therefore they are reducing RWA,” Dimon said. “Some people expected a wave of sales. We have not seen that. It’s been an orderly process. An orderly transfer of assets from one bank to another.”
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