How Jamie Dimon handled his appearance before U.S. Senate
JP Morgan's CEO Jamie Dimon transformed his Day of Contrition into a soapbox.
You've got to hand it to the CEO of J.P. Morgan and whoever coached him behind the scenes for his recent appearance before the Finance Committee of the U.S. Senate.
What was supposed to be a Day of Contrition ended up providing Jamie Dimon with a high-profile, multi-platform soap box from which — with all eyes and cameras on him — he delivered a scathing indictment of current financial regulation.
After agreeing, almost as an aside, that the bank's $2-billion loss on a portfolio of aggressive trades demonstrated a stunning failure to properly manage risk, Mr. Dimon deftly turned the tables on his inquisitors and drove up his bank's share price in the process.
He lashed out at the increasingly cumbersome and muddled layers of bank regulation which, he insists, could have done nothing to present the JP Morgan losses. It's the same subject over which he locked horns with Mark Carney, Governor of the Bank of Canada a few months ago at a meeting of bankers.
Mr. Dimon's bank is among the most heavily regulated institutions in America, if not the world. Various regulatory bodies and supervisors are constantly climbing all over the bank, reviewing its credit and business practices. And yet, the massive trading losses still occurred.
It only underscores the reality that, however well-intentioned, regulations forged in response to a specific crisis almost always miss the point.
That's certainly true of the controversial Sarbanes-Oxley, legislation that followed a string of high profile corporate scandals in 2002. Although it was intended to enhance accountability, transparency and the responsibility of directors, it also added a layer of complexity — and operating cost — that many claim has diminished the competitiveness of American companies. Some of the key elements have been gradually watered-down over the past decade.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010 after the financial crisis of 2008, has been similarly attacked for needlessly piling on. Banks already must comply with increasingly rigorous international capital requirements and other rules. And the view of Mr. Dimon — and many others — is that overlapping jurisdictions and greater complexity only makes matters worse rather than better.
Arguments on both sides have merit.
But a big part of the problem in all of this is that the only people who are more scorned than bankers are the politicians who make the rules for them.
There was a time when the decision to publicly bash banks in an election year was a no-brainer for politicians. All the more, you'd assume, given the government bailouts and support of the financial sector in 2008.
But things aren't quite that simple these days.
Instead of staking out the moral high ground, the politicians found themselves accused of tampering with mechanisms they don't properly understand. And given the complexity of global financial markets, that might well be absolutely true.
What the Senators who hauled Mr. Dimon down to a Washington hearing really don't understand is how little capital they have left to play with.
In recent years, the trust that people place in government has been absolutely ravaged. The perception is that governments should shoulder much of the blame for the financial and political turmoil around the world. And where they have attempted to intercede, they have most commonly made matters worse.
Canada came through the financial crisis in relatively good shape because they have more stringent capital requirement rules than financial institutions in other countries. Last year, Canadian bank regulators were among the first to adopt the new international standards known as Basel III (the subject of Mr. Dimon's dispute with Mr .Carney).
The general population doesn't have much more faith in bank CEOs than it does in politicans. But something about Mr. Dimon's attack clearly resonated - possibly the fact that despite the $2 billion loss, his bank posted a $5.4 billion profit last quarter and is on track to make a $4-billion profit this quarter.
Because in the end, money — and, apparently, bank CEOs — shout down everything else.
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