Jamie Dimon, CEO of JPMorgan Chase, testifies in a hearing before the Senate Committee on Banking, Housing and Urban Affairs titled Annual Oversight of the Nations Largest Banks, on the Hart Constructing, September 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
JPMorgan Chase executives warned on Friday that tougher regulations within the wake of three bank failures this 12 months would raise costs for consumers and businesses while forcing lenders to tug out of some businesses altogether.
Asked by Wells Fargo analyst Mike Mayo on the impact of changes proposed by Federal Reserve Vice Chairman for Supervision Michael Barrow speech earlier this week, JPMorgan CEO Jamie Dimon said other financial players could win.
“That is great news for hedge funds, private equity, private lending, Apollo, Black stonesaid Dimon, naming two of the largest private equity players. “They’re dancing within the streets.”
Blackstone and Apollo didn’t immediately reply to requests for comment on Dimon’s remarks.
Banks have to hold more capital as a hedge against dangerous actions by each US and international regulators. Authorities are proposing higher capital requirements for banks with no less than $100 billion in assets after the abrupt collapse of Silicon Valley Bank in March. Nevertheless, it also coincides with a long-awaited set of international rules, initiated by the 2008 financial crisis, often called Basel III final stage.
The creation of shadow banks
“How much business is leaving JPMorgan or the industry if capital ratios increase as much as potentially proposed?” Mayo asked.
CFO Jeremy Barnum said banks would raise prices for loans and other end-user products before finally deciding to depart some areas altogether.
“To the extent we’ve pricing power and better capital requirements mean we’re not generating a correct shareholder return, we’ll attempt to re-price and see how that holds up,” Barnum said.
“If the worth change fails, we can have to remix in some cases, and which means withdrawing from certain services,” he said. “That probably means these services are leaving the regulated circuit and going elsewhere.”
After the 2008 financial crisis, stricter regulations forced banks to withdraw from mortgage and student loans. For firms and institutional players, takeovers and other huge loans at the moment are increasingly funded by private equity investors similar to Blackstone and Apollo.
This has given rise to non-bank players, sometimes known as the “shadow banking” industry, which has frightened some financial experts as they’re generally subject to less federal scrutiny than banks.