‘Bad For America’: Dimon Steps Up Regulatory Rhetoric

When last I checked in on Jamie Dimon, America’s favorite “red-blooded capitalist” was busy regaling analysts with a characteristically (and deliberately) caustic critique of the regulatory landscape.

The bank temporarily halted buybacks over the summer, citing higher capital requirements, and Dimon wasn’t pleased about it. “We don’t agree with the stress test. It’s inconsistent. It’s not transparent. It’s too volatile. It’s basically capricious and arbitrary,” he told Morgan Stanley’s Betsy Graseck, on the bank’s Q2 call, before suggesting the odds of JPMorgan losing money reside purely in the realm of the theoretical. “We didn’t lose money after Lehman. We didn’t lose money in the great — what just happened,” he said, apparently referencing the pandemic.

Dimon isn’t exactly famous for holding his tongue, but his rhetoric vis-à-vis capital requirements has become especially pointed over the past several years. In short, he seems intent on characterizing the regulatory burden beneath which JPMorgan, as the world’s most important financial institution, is compelled to labor, as unpatriotic. “It’s not good for the United States economy,” he told Graseck, in July.

It’s hardly surprising that Dimon is inclined to view onerous capital requirements as un-American. Dimon is, by his own account, among the country’s foremost capitalists, and because he believes capitalism is one engine of American prosperity (as opposed to an increasingly antagonistic contributor to the fraying of the country’s social fabric, as others believe), rules that curtail “his” bank’s ability to facilitate borrowing and lending are an affront to America itself.

On Tuesday, in remarks prepared for two days of testimony on Capitol Hill alongside his ostensible peers, Dimon stepped up the rhetoric, calling imminent increases to JPMorgan’s required capital “bad for America.”

“The continued upward trajectory of regulatory capital requirements on America’s already fortified largest banks, particularly when not reflective of actual risk, is itself becoming a significant economic risk, because unrepresentative capital requirements erode banks’ ability to meet customer needs,” he said, adding that,

[R]egulatory capital minimum requirements already have JPMorgan Chase setting aside more than $200 billion in capital, which is in addition to loan loss reserves. In the coming months, JPMorgan’s amount of required capital will increase not due to increased risk, but because long-needed adjustments have not yet been made to risk-agnostic size-based factors in parts of the capital framework, like the GSIB surcharge. This is bad for America, as it handicaps regulated banks at precisely the wrong time, causing them to be capital constrained and reduce growth in areas like lending, as the country enters difficult economic conditions. It is bad for consumers, as it forces banks to do illogical things like reducing mortgage exposure in order to drive down assets. Strong and resilient banks that can support the American economy through a crisis are key to American growth and competitiveness. I urge our nation’s leaders to be thoughtful about the effect of arbitrary increases in capital requirements and its cumulative impact on lending, market liquidity and other economic activity.

When phrased that way, it’s impossible to argue with Dimon, which is obviously by design. Nobody would suggest regulations should be such that banks are restricted in their capacity to facilitate economic activity, let alone that banks should be compelled to “do illogical things” like turn away would-be homeowners.

In short, when you describe something as “arbitrary” in a cadence that suggests you’re stating a fact as opposed to voicing an opinion, you’re constructing a straw man. I know, because I do it all the time. “Arbitrary” almost always carries a negative connotation.

But as much as this rankles Dimon, he’s not the arbiter of what is or isn’t arbitrary when it comes to capital requirements. Maybe he should be, though. I’m certainly open to that, as crazy as it might sound. Government officials and US lawmakers aren’t known for crafting carefully tailored solutions that guard against unintended consequences. You could (quite plausibly) suggest that the only thing more dangerous than letting Wall Street police itself is giving the job to technocrats and politicians, especially at a time when both groups are grappling with existential credibility crises.

Still, I can’t escape the feeling that Dimon’s deep disdain for what he plainly believes is dangerous incompetence on the part of those responsible for crafting, implementing and enforcing America’s bank regulatory regime, leaves him predisposed to spite. Recall that in September and October of 2019, during the short-end funding squeeze which forced Fed intervention, Dimon voiced similar concerns, suggesting regulatory burdens prevented the bank from stepping in to backstop the system.

I hope (I really do) that the often potent combination of spite and the aging process doesn’t color Dimon’s decision making. As he made abundantly clear in 14 pages of testimony, JPMorgan sits at the center of the US economy, and thereby at the center of the financial universe. His job is to be level-headed and rational even when nobody else is. In an environment where too many Americans are swept up in a nationalistic frenzy which in many cases manifests in animus towards any and all organs of the state, I’m not sure branding well-meaning efforts to safeguard the banking system “bad for America” is constructive — however hopelessly misguided and naive those efforts might be.

In the same remarks, Dimon assured lawmakers that come rain or shine, come hell or high capital requirements, JPMorgan won’t waver. At a time when “even the best and brightest economists are split” on the economic outlook, “JPMorgan is prepared for even the worst outcome.”

The word “capitalism” didn’t feature in Dimon’s testimony. He attributed America’s success as a nation to “freedom of speech, freedom of religion, freedom of enterprise, the sanctity of the individual and the promise of equality and opportunity for all.” Regulatory gripes aside, his faith in the country is “as strong as ever.”

Hallelujah.