Banking crisis in the US is not over yet, warns JPMorgan

Silicon Valley Bank's blunders were encouraged by US regulation, the Federal Reserve (Fed) did not stress test it, and it was "hiding in plain sight" until Wall Street and depositors became alarmed.

That's JPMorgan Chase & Co. chief executive Jamie Dimon's assessment of the US banking crisis that sent markets tumbling last month, an episode he predicts is "not over yet" and will be felt. during years. He said US authorities should not "overreact" by imposing more rules.

In his lengthy annual letter to shareholders released Tuesday, Dimon outlined his company's aspirations to use artificial intelligence and ChatGPT, weighed in on geopolitics and provided updates on JPMorgan's activities in Ohio. This time, many of his sharper comments were directed toward regulation, including capital rules that pushed banks to abuse low-interest assets that lost value as interest rates rose.

“Ironically, banks were incentivized to hold very safe government instruments because they were considered highly liquid by regulators and had very low capital requirements,” Dimon said. “Even worse,” he added, the Federal Reserve did not stress test banks about what would happen when rates rise.

When Silicon Valley Bank's uninsured depositors realized the bank was losing money by selling instruments to keep up with withdrawal requests, they scrambled to get their cash out. Regulators then stepped in and confiscated it.

“This is not to absolve the bank's management, it's just to make it clear that this was not the best time for many actors,” he said. "All of these conflicting factors became critically important when the market, rating agencies and depositors focused on them."

Dimon, 67, who has run JPMorgan since 2005, is now the only chief executive of a major bank that experienced the 2008 financial crisis and is still in the job. As the industry's most prominent and vocal leader, bankers, traders and investors scrutinize his annual letter for his views, but also for signs of things to come for the financial sector.

Artificial intelligence is "extraordinary" and will be crucial to JPMorgan's future, Dimon wrote. The bank already has more than 300 use cases for the technology and is exploring ways to “grow and empower employees,” including with ChatGPT, the popular natural language processing tool.