Jamie Dimon rips Fed tension test as ‘dreadful method to run’ monetary system

JPMorgan Chase CEO Jamie Dimon didn’t mince words when it concerned the regulative procedure that required his bank to suspend its stock buybacks.

Asked by seasoned banking expert Betsy Graseck of Morgan Stanley on Thursday about the Federal Reserve’s current tension test, Dimon let loose a series of reviews about the yearly workout, which was executed after the 2008 monetary crisis almost capsized the world’s economy.

“We don’t agree with the stress test,” Dimon stated. “It’s inconsistent. It’s not transparent. It’s too volatile. It’s basically capricious, arbitrary.”

JPMorgan, the greatest U.S. bank by possessions, is rushing to create more capital to assist it abide by the outcomes of the Fed test. Last month, progressively increasing capital requirements within the test struck the greatest international banks, requiring the New York- based bank to freeze its dividend. While Citigroup made a comparable statement, competitors consisting of Goldman Sachs and Wells Fargo increased financier payments.

Under the test’s theoretical situation, JPMorgan was anticipated to lose around $44 billion as markets crashed and joblessness rose, Dimon stated. He basically called that figure bunk on Thursday, asserting that his bank would continue to generate income throughout a recession.

After JPMorgan launched second-quarter outcomes, it divulged a raft of other steps it is requiring to other half capital, consisting of by momentarily stopping share repurchases. That relocation, in specific, wasn’t invited by financiers, as the stock hasn’t been this low-cost in years.

Shares of the bank fell as much as 5%, striking a fresh 52- week low.

CFO Jeremy Barnum contributed to the discussion, stating that while regulators provide a lot of details about the shapes of the yearly test, a crucial element of the so-called tension capital buffer does not get launched to banks, making it “really very hard at any given moment to understand what’s actually driving it.”

“We feel great about structure [capital] rapidly enough to fulfill the greater requirements,” Barnum stated. “But they’re pretty big changes that come into effect fairly quickly for banks, and I think that’s probably not healthy.”

Other steps the bank has actually been required to take: JPMorgan is drawing back on “risk-weighted assets,” which broadly suggests anything on the bank’s balance sheet that needs capital to be held versus it. As one example, JPMorgan is preparing to discard home loans kept in its portfolio, Dimon stated.

An effect of these relocations is that JPMorgan, a huge organization with a $3.8 trillion balance sheet, is required to withdraw credit from the monetary system simply as storm clouds collect on the world’s greatest economy.

The actions take place to accompany the Fed’s so-called quantitative tightening up strategies, which require a turnaround of the reserve bank’s bond-purchasing efforts, consisting of for home loans, which might even more roil the marketplace and increase loaning expenses.

The result is that the bank needs to act at “precisely the wrong time reducing credit to the marketplace,” Dimon stated.

The relocations will eventually affect regular Americans, especially lower-income minorities who generally have the hardest time getting loans to start with, he stated.

“It’s not good for the United States economy and in particular, it’s bad for lower-income mortgages,” Dimon stated. “You haven’t fixed the mortgage business and then we’re making it worse.”

During a media call Thursday, Dimon informed press reporters that while JPMorgan isn’t leaving business, the capital guidelines might require other banks to decline from mortgage completely. Wells Fargo has stated it would diminish business after rising rates of interest triggered a high drop in volume.

Instead, JPMorgan will stem home loans, then right away unload them, he stated.

“It’s a terrible way to run a financial system,” Dimon stated. “It just causes huge confusion about what you should be doing with your capital.”