Dimon’s Davos offensive is premature
By Peter Thal Larsen
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
DAVOS, Switzerland — Bankers are back on the front foot. At the World Economic Forum in Davos, Jamie Dimon led a chorus of his peers warning of the dangers of excessive regulation. In front of a packed meeting, the JPMorgan chief told French President Nicolas Sarkozy, “Too much is too much”. But his complaint is misguided — and his new offensive premature.
It’s not hard to see why Dimon is frustrated. JPMorgan weathered the crisis well, and has emerged even larger and more formidable than before. Dimon and other crisis survivors like Peter Sands of Standard Chartered feel they are being blamed for the sins of less capable peers — most of whom retired to the golf course years ago.
And bankers are entitled to a big role in the debate about financial reform. New regulations will raise the cost of credit for consumers and companies. They may also shift risk to unregulated shadow banks. So far, regulators and politicians have largely set the tone. Banks need to participate in the discussion, and do a better job of explaining their vital economic function.
But most bankers’ knee-jerk response to any regulatory shift has been to resist it. The industry has opposed virtually every new rule introduced anywhere in the world since the crisis started in 2007. As a result, its objections have little credibility.
Besides, the financial system is far from fixed. Though capital ratios have been increased and liquidity buffers enlarged, officials still have no way of dealing with big banks that fail without putting taxpayers’ money at risk. As long as this moral hazard persists, banks will have an incentive to become large while enjoying an implicit government guarantee.
Dimon says he’s in favour of winding down what he calls “big dumb banks”. But getting to the point where a behemoth like JPMorgan could be safely shut down is a complex, cross-border puzzle. The bank’s boss needs to engage in the discussion to solve it. At least until that is achieved, whining about new rules, especially in public, is counterproductive.