Jamie Dimon, the CEO of JP Morgan Chase, is warning investors and shareholders about an upcoming economic crisis that is likely to happen sooner than later. Dimon believes that the government regulations are going to severely hinder the ability of the banks to appropriately respond when that economic crisis hits. Dimon talks about how most investors quickly sell the assets that are causing the problem, while also hoarding the assets that are beneficial during turmoil, like U.S. Treasuries.
Dimon began to talk about the government regulations and new rules that have been put on the banks, which will end up making it more difficult for all financial institutions to become flexible during a bad situation. The regulations went into effect after the 2008 financial crisis, so back then the banks had more flexibility when it comes to taking risks and accepting various assets. Dimon says that the liquidity requirements would hinder the banks in terms of being able to take those risks that they did back in 2008, because they would need to have that cash on hand. Banks will not be able to hold loans or securities due to the restrictions they have when it comes to taking certain risks. The banks would also be less likely to accept some deposits, because the banks are going to want to be hoarding their cash.
While the economy is stronger now than it was in 2008, those new regulations essentially tie the hands of the bankers because it doesn’t give them the ability to give lines of credit or create new capital in times of hardships. Under new bank rules, it will be almost impossible for the banks to underwrite stock offerings, because the capital they would use for this type of situation is going to have to stay at the bank. The banks will not be allowed to take those risks or hold those assets that are risky, and these restrictions will impact people who are looking for that little line of credit during times of emergencies.
Dimon reminded the shareholders that there will be more non-bank lenders that are going to be coming in during these economic hardships, which will end up taking advantage of Americans looking for cash and credit. When the bank are not allowed to take some risks and do their job, someone else that does not have those regulations will come up and basically become a snake, stealing money from the lower-income and desperate people in dire straights. Dimon says that banks need to be able to have liquidity cash available to give out to people on various scales, and the banks need to be able to take collateral. Dimon warns that if the bank regulations of today were used in 2008, the economy would be even worse off than it is now, and the entire financial sector would be vastly more negative. While regulations on the bank can be a good thing, a lot of these new rules were done in an emotional response to the 2008 crisis. This means that some of the rules and regulations will end up having unintended consequences because the plans were not very thought out, and people just reacted angrily at the banks.