Jamie Dimon, CEO of JPMorgan Chase, testifies in the course of the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Constructing on Sept. 22, 2022.
Tom Williams | CQ-Roll Call, Inc. | Getty Images
JPMorgan Chase executives warned Friday that tougher regulations within the wake of a trio of bank failures this 12 months would raise costs for consumers and businesses, while forcing lenders to exit some businesses entirely.
When asked by Wells Fargo analyst Mike Mayo in regards to the impact of changes proposed by Federal Reserve Vice Chair for Supervision Michael Barr in a speech earlier this week, JPMorgan CEO Jamie Dimon said that other financial players could find yourself winners.
“That is great news for hedge funds, private equity, private credit, Apollo, Blackstone,” Dimon said, naming two of the biggest private equity players. “They’re dancing within the streets.”
Blackstone and Apollo didn’t immediately reply to requests for comment on Dimon’s remarks.
Banks face requirements to carry more capital as a cushion against dangerous activities from each U.S. and international regulators. Authorities are proposing higher capital requirements for banks with at the least $100 billion in assets after the sudden collapse of Silicon Valley Bank in March. But that also coincides with a long-awaited set of international rules spurred by the 2008 financial crisis known as the Basel III endgame.
Rise of the shadow banks
“How much business leaves JPMorgan or the industry if capital ratios go up as much as potentially proposed?” Mayo asked.
CFO Jeremy Barnum said that banks would raise prices on end users of loans and other products before ultimately deciding to go away some areas entirely.
“To the extent we now have pricing power and the upper capital requirements signifies that we’re not generating the fitting return for shareholders, we are going to attempt to reprice and see how that sticks,” Barnum said.
“If the repricing shouldn’t be successful, then in some cases, we can have to remix and which means getting out of certain services and products,” he said. “That probably signifies that those services and products leave the regulated perimeter and go elsewhere.”
After the 2008 financial crisis, heightened rules forced banks to drag back from activities including mortgages and student loans. For firms and institutional players, acquisitions and other huge loans at the moment are increasingly funded by private equity players like Blackstone and Apollo.
That has contributed to the rise of non-bank players, sometimes known as the “shadow banking” industry, which has concerned some financial experts because they often face lower federal scrutiny than banks.
