JPMorgan CEO Dimon: I don’t know what too big to fail means anymore

 

Bloomberg had a depth interview about the state of banking with JPMorgan CEO Jamie Dimon. Is his bank too big to fail? Does that even mean anything any more?

He addressed:

– The debt ceiling and risks of political brinksmanship

– State of banking overall

– Regional bank health

– Why big banks are necessary

– Whether banks are too big to fail

– Bank regulatory outlook and what regulators can do to help from here

His ‘I don’t know what [Too Big To Fail] means anymore’ comment will surely be taken out of context, but I agree with him here.

Why? Because it’s just a posturing statement said by some in Washington (politicians). Meanwhile others in Washington (regulators) closely partner — and very much expect — big banks to help when things go wrong.

JPMorgan’s First Republic deal was a good example.

The FDIC ran an open bidding process from banks to buy failed First Republic.

They need the best deal so they don’t lose and risk their obligation to consumers to back deposits.

So when JPMorgan won, a lot was said about how smaller banks couldn’t possibly beat JPMorgan.

Do the folks against this really want a potentially wobbly institution to buy a failing institution in a crisis moment?

It’s admittedly a tough question because if others don’t get a chance to win, how do they grow?

After all, JPMorgan got huge partly by buying distressed assets. Before First Republic (the second largest bank failure in history), they bought WAMU (largest bank failure in history) and also Bear Stearns during the 2008 crisis.

But if banks smaller than a bank like JPMorgan win future FDIC bids or cooperate with regulators to solve a different crisis (and get bigger as a result), then is the ‘too big to fail’ posturing just directed at them?

And if so, is that productive in any way?

Or is that just how the system is supposed to work: bigger players working with regulators to help smaller players and keep the system safe when any player is in trouble?

In any case, Dimon’s leadership in banking is arguably as important as regulator leadership, and his team works extremely closely with regulators.

If they didn’t, the system would be less healthy.

Please share your take on this nuanced issue. Would love to know your thoughts.

Here’s the interview.