Money market funds and investors forming the so-called shadow banking sector should be allowed to pursue their business as they provide a necessary service, said JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon.
“It’s a free market,” Dimon said in Davos, Switzerland today in response to a question from a participant at the World Economic Forum who said he was a shadow banker. “You’re entitled to build a business and I agree that there are a lot of needs out there and people should find ways to fill them.”
Global regulators are pushing for tougher rules on a shadow-banking system that offers complex forms of credit and that led to billions of dollars in losses during the financial crisis. Shadow-banking assets in 11 countries including the U.S. more than doubled since 2002 to $51 trillion, an amount equal to about half of total bank assets in those nations, according to a 2011 report by the Financial Stability Board, which coordinates the work of regulators and central bankers.
“As long as you can fund institutionally and as long as your investments are capital-markets investments, that’s fine,” Axel Weber, chairman of UBS AG, Switzerland’s largest bank based in Zurich, said in response to the same question while on the panel with Dimon. “I don’t think you’ll see a lot more regulation in any of the entities, it’s more the retail space and deposit space that will be protected in future.”
Shadow-banking entities include money-market funds, collateralized loan obligations, credit hedge funds and asset-backed commercial paper conduits, according to a 2010 Federal Reserve Bank of New York staff report. They provide “sources of inexpensive funding for credit by converting opaque, risky, long-term assets into money-like and seemingly riskless short-term liabilities, the authors wrote in an abstract of the report.
Germany’s financial markets regulator BaFin said yesterday that shadow banks need to be subject to international oversight for regulation of other banks to be effective. Elke Koenig, BaFin’s president, said in a speech in Frankfurt that countries ‘‘would win little security if we pushed evasive actions into the weakly regulated or unregulated market.”
“As long as you’re not a systemic risk, you should be allowed to do what you want,” said Dimon, who heads the largest U.S. bank by assets. “You will have to compete with us though too one day.”