Dimon to Shun Mortgage Ownership Under Proposed Capital Rules
Jamie Dimon, chairman and chief executive officer of JPMorgan Chase & Co. (JPM), said the bank probably won’t keep mortgages on its books under a plan requiring the largest lenders to hold extra capital.
The proposal will distort U.S. markets, what consumers pay for credit and the types of risk banks would be willing to retain on their balance sheets, Dimon said today at a Sanford C. Bernstein & Co. investor conference in New York.
“It’s got consequences that I don’t think they’ve really thought about,” Dimon said of regulators.
Central bankers and financial supervisors worldwide are devising capital, liquidity and risk-management standards for banks, known as Basel III. The Basel Committee on Banking Supervision, named for the city where its meetings are held, is considering forcing so-called global systemically important financial institutions to hold capital buffers equaling as much as 3 percent of risk-weighted assets, people familiar with the negotiations said in March.
As many as 26 institutions may need to raise their minimum capital, Tim Ryan, chief executive officer of the Global Financial Markets Association, an industry group, said in a memo sent to board members.
JPMorgan, the most profitable U.S. bank, won’t make “an adequate return” on certain products under the proposed rules and 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 bank will still originate mortgages, “I just don’t own them,” he said.
The plan also may distort the market favorably for JPMorgan as its borrowing costs probably will decrease and deposits may climb compared with less-capitalized competitors, he said.
The proposal may disadvantage U.S. banks that compete globally, as Dimon said he’s heard that Japan, China and India may be excluded from the rules, giving banks based in those countries a competitive edge.
“We have to make sure we protect our company from a playing field which is really tilted against JPMorgan being a global competitor,” Dimon said. “Over the long run, there are some minuses and pluses for having a lot of capital and being a global” systemically important financial institution, he said.
Bank officials last year agreed to more than double the minimum common equity requirement for lenders to 4.5 percent from 2 percent of assets weighted for risk.
Banks also will be asked to maintain a “capital conservation” buffer of as much as 2.5 percent common equity in periods of “excess credit growth,” bringing total common equity requirements to as high as 7 percent of assets weighted for risk. The capital buffer for systemically important firms would come on top of this new standard.
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