Jamie Dimon and I don’t hang out together. Dimon is the CEO of JPMorgan Chase, the parent company of Chase Bank. Chase’s assets are roughly 3,500 times larger than your Credit Union’s. He hangs out at exclusive country clubs and expensive restaurants. I hang out in bowling alleys and at home eating dinner while watching our local teams’ games. Along with his great lifestyle, Mr. Dimon does not lack for self-confidence.
Recently, he announced in the bank’s annual report that the “too big to fail” issue has been solved. In other words, taxpayers will not pay if one of the major “too big” banks,” such as Chase, Bank of America, Wells Fargo, CitiBank, U.S. Bank, and a few others, fails. In his view, any failure would not harm the U.S. economy.
The “too big to fail” doctrine originated from the 2008 Great Recession and refers to the federal regulators’ assessment that the largest financial institutions could not be allowed to fail. Such failure would subsequently affect the entire financial system. These banks all accepted billions of dollars in taxpayer bailout money.
Not so fast, Jamie. Minneapolis Federal Reserve Bank President Neel Kashkari responded in a less than agreeable fashion. Mr. Kashkari disputed Mr. Dimon’s assertions that the largest banks are well-capitalized and well-regulated enough to sustain the financial shocks felt during the Great Recession. Kashkari said bank equity in general is about half of what it needs to get through another worldwide crisis and believes regulators are still being too easy on banks.
This last part is really surprising given that the Fed is the primary regulator of the largest banks. Kashkari has essentially thrown his own examiners under the proverbial bus. He is the newest of the Fed presidents and has a unique perspective of past and present financial waves. Kashkari was an aide to Secretary of the Treasury Henry Paulson in 2006, oversaw the Troubled Asset Relief Program, or TARP, in 2007-08, managed equity mutual funds at a large investment firm, and even ran for Governor of California in 2014.
Kashkari has estimated the odds of another bailout in the next century are nearly 70%. The Fed has analytics on every national bank, so his estimation is somewhat sobering. Dr. Alan Beaulieu of ITR Economics, who has been remarkably accurate forecasting economic downturns, predicts a doozy in 2030. They believe the convergence of global inflation, healthcare costs, entitlement spending, and the growing national debt will lead to a worldwide 1930s-style Depression.
That might give Jamie Dimon some pause while he’s munching on his shrimp cocktail at Nobu.
David M. Green