Regulators and banks should develop a system allowing lenders to go bust without damaging the world economy to help restore public trust in the industry, JPMorgan Chase (JPM) Chief Executive Officer Jamie Dimon said.
"We've got to get rid of too big to fail," Dimon, 56, told clients of the bank during a panel discussion in the German town of Koenigstein, near Frankfurt, late yesterday. "We have to ensure big banks can be taken down without harming the public and at no cost to them." Global regulators should also work together to wind down failed multinational banks, he said.
Governments and central banks propped up banks with trillions of dollars to prevent further shocks to the financial system and ensure the flow of credit following the collapse of Lehman Brothers Holdings Inc. in 2008. Regulators are pushing banks to strengthen capital reserves and liquidity to help them weather future turmoil and avoid taxpayer-funded rescues.
"There's still the presumption that we can't let some global banks go to the wall," Deutsche Bank AG co-CEO Anshu Jain said at the panel. Some countries such as Spain may not be confident enough to allow smaller lenders to fail, he said.
Deutsche Bank is Europe's largest bank, with 2.19 trillion euros ($2.92 trillion) in assets under locally applicable accounting rules, company filings show. JPMorgan is the biggest U.S. bank, with $2.36 trillion of assets under U.S. rules that allow the netting of derivatives, data compiled by Bloomberg show. Deutsche Bank has 1.28 trillion euros of assets under such rules, according to the company.
"Size alone is not the real issue," Nikolaus von Bomhard, CEO of Munich Re, the world's largest reinsurer, said on the panel. Banks need sufficient capital to back up their operations and should cease to offer products that their regulators don't understand, he said.
Dimon said that while a bank the size of JPMorgan can be wound down at no cost to the taxpayer, coordination among regulators in different countries is necessary because of businesses that stretch across borders.
New liquidity and capital requirements known as Basel III are taking banks to a "very good destination," Jain, 50, said.
Germany's financial markets regulator has asked Deutsche Bank to simulate splitting its securities and retail business, a person with knowledge of the situation who asked not to be identified because the matter is private said today.
Such a split, as proposed by the European Union- commissioned group led by Bank of Finland Governor Erkki Liikanen, would raise costs for clients and should only be applied if banks around the world are forced to adopt the model, Jain said.
Regulators in Europe are at different stages of considering whether or planning to implement such a split, which would aim to protect depositors and taxpayers from potential losses.
Large banks that can offer companies an array of services are in the interest of the economy, said Jain and Dimon.
Dimon said he disagreed with parts of Basel III, such as the definition of securities that banks may count as easy-to- sell liquidity reserves. The capital surcharge for the world's biggest banks "was not well done," he said.
While JPMorgan's $6.2 billion trading loss last year was "embarrassing," the bank has delivered three years of "record" profit, he said.
"It was one of the stupidest things I've seen," Dimon said. "I'm mostly sorry to my shareholders. But JPMorgan is not obviated by a mistake."
Dimon said Tom Brady, the New England Patriots football player who has passed Joe Montana for the most National Football League playoff wins by a quarterback, called to cheer him up after the loss.
"I owe him a lot," Dimon said without specifying when the call took place. "At first I thought it was a friend of mine pulling a prank. I thought it was Lloyd Blankfein," he said, referring to the CEO of Goldman Sachs Group Inc.