Kashkari Slams Jamie Dimon's Complaints About Regulatory BurdenBy
Minneapolis Fed president criticizes banker’s annual letter
JPMorgan CEO accused of making ‘demonstrably false’ claims
Minneapolis Federal Reserve President Neel Kashkari criticized JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon over what he contends are unrealistic views on core U.S. banking regulations.
Dimon’s assertions in a letter to shareholders this week that government-imposed capital requirement for big banks are holding back lending and that relaxing them could spur economic growth “are demonstrably false,” Kashkari said in a blog entry posted to the Minneapolis Fed’s website Thursday.
“If loans were scarce, borrowers would be competing for them, driving up costs,” Kashkari wrote. “That isn’t happening.”
Kashkari, a former Goldman Sachs Group Inc. banker who worked in Henry Paulson’s Treasury Department during the 2008 financial crisis, has used his Minneapolis Fed position to push for tougher bank capital rules, though the post gives him no formal role in writing U.S. regulatory policy.
Andrew Gray, a JPMorgan spokesman, declined to comment.
In his letter, Dimon lamented that JPMorgan is constrained in lending because of capital demands. In response, Kashkari noted that the bank has bought back $26 billion of its own stock in the last five years, using money that he says could have been loaned to customers.
Dimon also said the Dodd-Frank Act effectively ended the possibility of government bailouts for so-called too-big-to-fail banks. A failure wouldn’t threaten taxpayers, he argued, in part because regulators have demanded that big banks pile up long-term debt that can be turned into a cash cushion. Kashkari cast doubt on whether that approach -- which calls for regulators to go after bond holders -- would work in a crisis, saying it’s something that “almost never actually works in real life.”
“Debt holders of the most systemically important banks in the United States and around the world have repeatedly experienced bailouts and likely will expect such an outcome during the next financial crisis,” he said.
Kashkari isn’t the only Goldman alumnus to disagree with Dimon on what Dodd-Frank accomplished. Gary Cohn, the former Goldman Sachs president who now heads President Donald Trump’s National Economic Council, has also said that the 2010 law failed to solve the too-big-to-fail problem. Treasury Secretary Steve Mnuchin, another former Goldman banker, has been ordered by Trump to reexamine Dodd-Frank rules.
One thing Kashkari and Dimon did agree on: “reducing regulatory complexity.” But Kashkari is continuing to argue that higher capital can replace other regulations while Dimon said that there is already “excess capital in the system.”