Thursday, June 9, 2011

Jamie Dimon Challenges Bernanke

Jamie Dimon, the Chief Executive Officer of J.PMorgan Chase (JPM), had some things to say (in a public forum no less) about bank regulations to Ben Bernanke earlier this week. He's of the view regulators have gone too far and are slowing economic growth.

Bloomberg: Dimon Challenges Bernanke

I'm sure some will see this just as a banker whining about the rules. I'm certainly someone who wants systemic risk reduced and the banks speculative activities reigned in.

I also happen to think it mostly needs to be done by separating or limiting short-term speculative trading activities financed with guaranteed money (other peoples money) and through the modification of bank executive compensation systems (bankers with more skin in the game...more negative consequences if they take dumb risks).

Ultimately, I'd prefer changes that encourage banks to focus on financing vital industries instead of financing prop trading desks focused on the short-term.

It seems that some of the well-intentioned regulatory changes have lost focus. Dimon thinks overzealous regulation is hurting the economic rebound. He wonders whether in 20 years we'll look back on this time amd realize all the things we did to slow down the recovery.

What might be considered good examples of the lack of focus?

Considering the size of Dodd-Frank Act (well over 2000 pages in length), it's more than a little disappointing that so little has been done so far about the things that really got us into trouble. I mean, whether you think debit card swipe fee reform (part of Dodd-Frank) is fair or not it made no contribution to the crisis.

There is tons of complexity and uncertainty about what the new rules of the game will be. The rules have to be locked down if we want a more healthy expansion of credit to occur.

Much of what has been done appears to be potentially throttling the socially useful things that banks do.

A bank that provides credit to a sound business can help facilitate productive economic activity and growth.

A bank that funds a prop trading desk -- and things like it -- is of little to no value or worse.

The uncertainties created in this environment are holding both back.  We need to lock down changes that will drive more of the former and less of the latter.

Adam

Long JPM

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