JP Morgan's CEO warns that a new financial crisis comes - and it will be worse than the last one. Stricter regulations makes the banking boss worried.
In his annual letter to shareholders of JP Morgan, CEO Jamie Dimon writes that a new financial crisis will come - and that the market reaction will be even more volatile because the banking regulations are tougher now than during the last financial crisis.
Dimon, who also previously criticized the regulations imposed on banks after the 2008 crisis, believes that the regulations certainly has made banks safer and stronger. But they also do that banks can not help out in case of a financial crisis.
JP Morgan chief points to that his bank during the crisis in 2008 attracted $100 billion in deposits from weaker banks. In case of another financial crisis the bank would not be able to do the same.
According to Dimon, higher requirements on banks 'capital and liquidity of banks' inhibit the ability to absorb shocks in the financial markets. In addition, banks become more cautious in offering credit. He therefore believes that the next financial crisis will be characterized by more volatile markets and rapid fluctuations even in liquid markets.
Dimon sees troubling warning signs in the market for government securities and foreign exchange markets. In October last year there was a sharp movement in US Treasuries. The price moved 40 points. Dimon writes that such a vigorous movement should only occur "once in three billion years."
The movement was absorbed, however, with the relative ease of the market. "But this happened in a prosperous environment," writes Dimon and adds that if it had happened in a stressed environment, the consequences would have become significantly more difficult.
Dimon does not believe that banks will be the center of the storm during the next crisis. The stricter regulations prevent banks from acting as buffers in the crisis, but they have also made banks safer and stronger than before.
"Usually financial markets recover as long as the economy does not collapse," says Dimon.
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