JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon asked Federal Reserve Chairman Ben S. Bernanke whether regulators have gone too far by reining in the U.S. banking system and are slowing economic growth.
Dimon asked whether the central banker has measured the cumulative effects of new capital requirements, mortgage standards and other rules imposed on the system in the wake of the U.S. financial crisis. Dimon, 55, spoke yesterday in a question-and-answer session after Bernanke addressed a conference of bankers in Atlanta.
Dimon asked Bernanke if he “has a fear like I do” that overzealous regulation “will be the reason it took so long that our banks, our credit, our businesses and most importantly job creation to start going again. Is this holding us back at this point?”
The Fed may hold the benchmark interest rate near zero into next year. The U.S. unemployment rate rose to 9.1 percent in May while U.S. home prices slumped in March to their lowest level since 2003, according to the S&P/Case-Shiller index of property values in 20 cities. Banks have tightened lending standards to what they were 30 years ago, Dimon said.
“There’s no more subprime, there’s no more Alt-A, there’s no more mortgages being packaged, the CMBS market has been completely reformed,” he said, referring to commercial mortgage-backed securities. “I have a great fear someone’s going to try to write a book in 20 years and the book is going to talk about all the things that we did in the middle of the crisis to actually slow down recovery.”
Dimon’s points are valid, Bernanke said at the American Bankers Association’s International Monetary Conference. The central bank doesn’t have the quantitative tools to study the net impact of all the regulatory and market changes over the last three years, he said.
“It’s too complicated,” Bernanke said, adding that he said he thinks there’s a way to safely regulate banks while preserving their ability to deliver “basic financial services.”
“But there is some trade-off there and you’re right to point that out,” Bernanke said. “It’s probably going to take a bit of time before we over time figure out where the cost exceeds the benefits and we make the appropriate adjustments.”
Richard Bove, an analyst with Rochdale Securities in Lutz, Florida, agreed with Dimon’s comments in a research note to clients yesterday.
“Hysterical Congress people and ‘born again’ regulators have single-mindedly pursued an attack on the banking system, totally unmindful of the impact of what they were doing would be on the national economy,” Bove wrote.
Dimon told investors at a conference in New York on June 2 that his bank, the most profitable in the U.S., probably will not hold mortgages on its books under a plan to require the largest lenders to hold extra capital.
JPMorgan won’t make “an adequate return” on certain products under the proposed rules and will have to reduce portfolio assets, including mortgages, that require higher levels of capital, Dimon said.
“Why would we own mortgages if you can own them at 7 percent capital and I have to own them at 10 percent?” Dimon said. The New York-based bank will still originate mortgages, “I just don’t own them,” he said.