Dimon Says US Banks Should Dictate to Regulators

Now that Steve Jobs has retired from Apple, Jamie Dimon seems determined to assume his role as the CEO with the most effective reality distortion sphere. You can infer that from the magnitude of the whoppers he is telling and the size of the audience he is trying to bamboozle.

But while Jobs’ Svengali tendencies have gotten more than occasional mention, they weren’t a major failing. Jobs not only saved Apple, but he spearheaded the development of important new product categories. By contrast, Dimon has long been a bully, a smart and capable bully, but a bully nevertheless (I have reports going back to his first year at Harvard Business School, and it takes some doing to be memorably obnoxious by dint of the competition in that category).

Now on the surface, Dimon’s latest brazen remark isn’t quite as gross as my headline suggests. He is merely saying that US banks should not be subject to the new incoming international bank rules, known as Basel III. That might seem to be a narrower statement, but as we show, when you parse his logic, it amounts to banking uber alles.

Here is the relevant section of an interview published today in the Financial Times:

New international bank capital rules are “anti-American” and the US should consider pulling out of the Basel group of global regulators, Jamie Dimon, chief executive of JPMorgan Chase, has said….

The Basel III capital rules are designed to make the financial system safer by making banks build up risk-absorbent “core tier one” capital to at least 7 per cent of risk-weighted assets. The biggest, including JPMorgan, have to reach 9.5 per cent.

“I’m very close to thinking the United States shouldn’t be in Basel any more. I would not have agreed to rules that are blatantly anti-American,” he said. “Our regulators should go there and say: ‘If it’s not in the interests of the United States, we’re not doing it’.”

Mr Dimon also criticised global liquidity rules, arguing that regulations that viewed covered bonds – a European market feature – as highly liquid but discounted government-backed mortgage-backed securities in the US were unfair and that other details hit investment banking activity core to US banks hardest.

Regulators say all countries compromised on agreeing the rules, which put eight banks – five from outside the US – in the top level of capital. But Mr Dimon said there was a threat that Asian banks, in particular, could take US market share because of the combination of US domestic and global rules.

“I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country,” said Mr Dimon. “If they think that’s good for the country then we have a different view on how the economy operates, how the world operates.”

Let’s start with some background. Treasury secretary Geithner said repeatedly during the Dodd Frank process that the shortcomings in the legislation didn’t matter all that much, since having banks carry larger capital buffers would do the trick, and that was coming with Basel III. In other words, Geithner argued the higher capital requirements to be imposed by international rulemaking process was where the critical banking regulatory fix would happen. And this is what Dimon is now, loudly, out to undermine.

Let’s go to the Dimon argument, such as it is. What about “international” does he not understand? If you want to play outside America’s borders, you can expect to be subject to different rules. The Eurozone, much to the consternation of US and UK players, has basically told the Anglo private equity firms to go to hell. They are forbidden both from doing deals in EU countries and from raising funds there unless they register and obey local rules. The Eurozone has gotten sick of rapacious foreign players buying decent European companies, cutting jobs, saddling them with lots of debt, and shrugging their shoulders when they miscalculate (often) and the rent extraction kills the company. The EU rules, among other things, will restrict how much a PE firm could lever up a portfolio company.

There is also what I assume is a deliberate misrepresentation on the part of Dimon. The Basel III rules are not implemented verbatim by national regulators; there is a more than a bit of tweaking and adjustment going on. Given the loud support that Geithner has given to the Basel III process (and the damage it would do to the US reputation in international bodies when emerging economies are already questioning the Anglo-Saxon model and demanding a bigger role), it’s hard to imagine the US acting on Dimon’s demands and repudiating the Basel III process. But he may be using this temper tantrum to get the US implementation to cut some slack on some issues near and dear to his heart.

Dimon interestingly assumes that the US can defy the will of other regulators. That’s probably true now, given that regulators in advanced economies all seem to adhere to neoliberal dogma. The interesting and glaring exception is the UK, which is forcing its banks to ring-fence their retail operations. The new standards (“Vickers,” for the commission’s chairman) require a capital cushion of up to 20%, with the largest ringfenced banks having at least 17% of equity and bonds and a further loss-absorbing buffer of up to 3% if “the supervisor has concerns about their ability to be resolved without cost to the taxpayer”. If Basel III’s 9.5% capital requirement is “anti American”, then how “anti British”, in Dimon’s world, is Vickers?

But it isn’t at all a given. Dimon’s assumption is that he has nothing to lose by pushing for his aggressive ask. But the Eurozone implemented Basel II before the US. Its banks are likely to howl about the costs of the equity and liquidity provisions, but they happen to be preoccupied right now, and the near certainty of further state intervention on their behalf is likely to weaken their ability to press for waivers when the Eurocrisis abates.

As we have stated before, both the ECB and the Fed could implement binding requirements on major international banks. Any real bank needs access to the central bank-run settlement systems in the dollar and euro; you need to be a full scale player in those currencies, and going through correspondents to get access to those clearing systems would be very cumbersome and costly (I had a client look at it for the US and conclude it was a non-starter). There is no way for the banks to innovate around these systems.

The next bizarre bit in Dimon’s rant is his characterization of Basel III as “anti-American.” What, because it is named for a Swiss city?

If you believe the PR of the US regulators (and this is one case where bank analysts agree with their take), US banks are better capitalized that Eurobanks. Forcing everyone to adhere to new capital standards will work to the competitive advantage of US banks, since they are further along. But anyone with an operating brain cell knows that Dimon’s real beef is not on the effect on American bank’s competitive standing, but on his pay package, which is a function of its bottom line. Any effort to make banking safer will lower their profits. That is what Dimon objects to; the specifics of his argument are simply to serve as cover for his real beef.

Dimon manages to play yet another jingoistic card, acting as if Basel III singles out US banks when a majority of the financial firms subject to the most stringent rules are outside the US. And he raises the truly bizarre specter of “Asian” hordes invading the US. Huh? Does he mean HSBC? I presume not, that’s a UK bank. The only Asian bank in the top 10 is Mitsubishi UFJ, and the Japanese are not likely to be in aggressive expansion mode (they’ve never gotten the knack institutionally of hiring and managing good top level foreigners; I know of a very few Japanese executives who have figured it out and did a good job when they were posted in the US, but as soon as they were rotated back to Japan, their successors made a hash of what they had put in place).

The Chinese are even less likely to move in near term (long term is a completely different matter). First, the Chinese were apparently interested in investing in US players in the crisis and were rebuffed. But having worked repeatedly with foreign banks in the US, building a denovo operation (or using small acquisitions as a platform) is a completely different kettle of fish. And going from the Chinese market of heavy state control and limited product scope to the US is like saying a drayage company can operate a supersonic plane because both are in the transportation business. I’ve seen what a hard time foreign banks have had in the US with a vastly lesser skill gap (one they closed over a period of decades). The Chinese are too far behind skill-wise to constitute a threat in the US until they can acquire the skills via a major acquisition (and that was not the scenario Dimon was hinting at).

And it goes without saying that Dimon made clear that he believe that what is good for banks is good for the US, when that has been demonstrably false for at least the last decade.

What’s striking about Dimon’s comments is how brazen they are. He’s not making clever, narrowly accurate but substantively misleading comments. Much of what he says and implies is unadulterated bunk. The fact that he peddles this tripe shows how confident he is that his message will go unchallenged. And that in turn reveals that he is secure in his belief that the banks have won the war; all he is caviling about is the speed of the mop-up operation.

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34 comments

  1. Foppe

    Actually, the US pulling out of the Basel agreement might be a good thing, as it might blow up that sorry institution, and revert the responsibility for banking regulations back to national level regulators, where (FWIW) it is much easier to hold politicians accountable than at the supranational level.

    1. pebird

      Well, everyone already knows that. It’s like saying the sky is blue.

      We are so past our reptilian overlords.

  2. hello

    given the idiocy of our polity, I’m surprised that a Basel III = a UN-Rothschild-Chinese-Jewish-Islamfascist takeover of American banking sovereignty meme hasn’t taken off yet.

    1. KnotRP

      Perhaps best summarized by rewriting the headline to
      read “Don’t hand over our banks to *those* sociopaths!”
      (Trust us, we know what sociopaths can do!)

  3. Linus Huber

    Lack of integrity is ingrained at such high degree that one has to wonder. Great analysis Yves.

    Let me add a thought. I do think that over the next few years, the most successful banks will be those that have the least leverage. The reason for this assumption lays in the fact that depositors are inclined to look for safety more than for short term profits. Of course, the benefits in form of bonuses (and similar looting activities) will be reduced for management. But this will happen in any case as a repeat of the credit bubble is not in the cards.

    This guy Dimon should be rather on the look out to avoid presecution down the road.

    In context with the big US banks and the cheating by for instance Greece to be accepted into the EU some years ago, I read, about a year ago, that GS was instigating the Greek government how to cook the books to comply with the entry terms. Of course, those government ministers were gullible enough, especially when getting treated with great reference (and whatever else that may have been used for enticement by GS) by those GS high rollers (who will do anything to increase their bonuses). I do not mean to excuse those Greek politicians but the fact is that without the tools provided by these crooks they may not have been able to cheat as easily as they did.

    1. Susan the other

      Jamie Dimon’s leitmotif is clearly “tax base.” The term anti-American is so blatant I could hardly believe he said it. He is saying that the US has the only sufficient tax base to guarantee its banking practices and Basel means little to nothing in comparison. He also implies the European covered bonds are less safe that American “government backed mortgage backed securities.” Wow. Did I miss something in all this. Since when are all those toxic CDOs become as good as a covered bond? Since our unemployment rate reached 17% ? Is Dimon trying to give these investments a new name? GBMBS?

  4. Skippy

    He used the ultimate quasi ideological phraseology….Basel III is UN-American.

    Skippy…desperation’s last uttering.

    1. patrick

      For any CEO to appeal to our patriotism given their policy of paying no taxes and shipping jobs overseas indicates a cynical assessment of the intelligence of the US voter. I fear that their assessment is correct.

  5. terry

    What an a**hole!!!!!!!!
    Un American? Whew! Talk about trying to strike at the heart of dixie. LOL!
    Man, money and power make for one sick a** soap opera.

  6. PeterB

    Would that one Senator or Congressmen in would answer Dimon’s lies with a sustained push to reinstate Glass-Steagall.

    1. CS

      Dimon’s just speaking from the book of JP Morgan history: Morgan led the lobbying fight to repeal Glass-Steagall. Their general counsel and chief lobbyist was promoted to Vice Chairman for his work.

  7. Steve from Cranbury

    While certainly brazen, Jamie Dimon’s comments fall far short of Lloyd Blankfein’s “We are doing the work of god”.

    Underlying the hubris of the bankers is their certainty that their works create the best of all possible worlds (for themselves). As such, they see themselves as demi-gods, divinely inspired to set government policies for the US and many European nations.

    God save Lloyd and his good works. The Market is divine.

    1. KnotRP

      Perhaps we are rationalizing incorrectly,
      and his God is Zuul, in which case all of
      the destruction makes perfect sense.

  8. ftm

    Nice take down Yves, Dimon should be a central and frequent target. His obnoxious liberal Chicago Democrat act to cover his mega bank looting is at the core of the political problems in this country.

    You can’t have the party ostensibly representing the majority interest run by elite looters.

    If Dimon and Morgan can ever be brought low, real bank reform and restructuring will be a unavoidable.

  9. DP

    With regard to Dimon’s concern about leverage and his pay package, the way to take care of that is to slap a marginal tax rate of 70% or so on annual income over $2 million, including the present value of new option and restricted stock grants to and ban deferred compensation and pension benefits that are based on formulas that differ from those of ordinary employees.

  10. lee

    Nothing Dimon says is striking to me. That is the nature of bullies; they will say and/or do anything for control. Dimon may be liked by the establishment Obama but the people of Chicago have long known what a bad dude Dimon is.

  11. readerOfTeaLeaves

    So, the way that I read this post, Dimon is claiming that more instability will be better for banks. What’s he smoking…?

    He also undercuts Geithner. That’s an interesting power move, and if Geithner fails to cut Dimon at the knees then we all get to watch yet one more needless train wreck i n which Geithner is mangled yet again. Bleck…

    Dimon implicitly admits that **banks and PE destroy capital**, by whining about how the poor Anglo firms should not be held to new ‘international’ regulations.
    But hey, if Dimon wants to arouse the passions of the Tea Party with his claim that reining in banks is ‘Unamerican’, then maybe he should take his place on the GOP Pres candidate stage next to Mitt Romney (aka Mr. Bain Capital). Booyah!

    Then again, who knew that Dimon reads Nick Shaxson’s blog?!
    http://treasureislands.org/britain-new-offshore-gateway-to-china/
    How much of Dimon’s whinging on about ‘unamericanism’ is really a veiled attempt to capture oodles of offshore renminbi…? Is Dimon aiding the Chinese desire to achieve the time when the dollar is no longer the reserve currency?
    Just askin’…

    Dimon is not fit to shine Steve Jobs shoes.
    Jobs has created wealth, and put more than one ‘ding’ in the universe.

    Dimon has extracted wealth, destroyed wealth, and looted.
    Dimon is a Svengali of feral finance.

    1. chris

      While not qualified to shine Steve Jobs shoes, Jamie might find gainful employment shining spitoons in his local house of worship.

  12. KnotRP

    Another distinct possibility is that they’ve already inserted a
    Trojan into Basel III, and Dimon is just making a scene so
    everyone thinks the “arrest” (think The Sting) looks real
    to the marks. Maybe this is the end of the con, and they’ll
    all meet up later to divide the payout….

  13. F. Beard

    I just hope the banks continue in their arrogance. More and more people are asking the question “Who needs them?”

    1. Linus Huber

      This is correct. The primary function of banks is to provide the business sector with loans. Today the large corporations issue their own bonds and small companies hardly need any further credit as the lack of demand does not justify further investments.

      Banks are supposed to be of service to business/industry but found some deranged way of creating some kind of bubbleonic scheme where their managers loot in form of enormous compensation packages and when things will collapse (and they will) the government or taxpayer should foot the bill. It is hard that there are not more people realizing this absurd situation and demanding change.

  14. gs_runsthiscountry

    The Don has spoken, now its up to the rest of syndicate to fall in line and parrot this meme. Remember, you feel the same way Jamie feels, Understand!

    Who will be the first to earn their badge of honor, by in executing these orders? The day is not over and we still have not heard a peep out of Bove yet?

  15. Ransome

    Hare Psychopathy Checklist (half of it, the business part)
    For each characteristic that is listed, the subject is given a score: 0 for “no,” 1 for “somewhat,” and 2 for “definitely does apply.” (Please note that Dr. Hare does not advise that the layman use this checklist for “diagnosing” friends and family. I worked for a “20”.

    1. GLIB and SUPERFICIAL CHARM — the tendency to be smooth, engaging, charming, slick, and verbally facile. Psychopathic charm is not in the least shy, self-conscious, or afraid to say anything. A psychopath never gets tongue-tied. They have freed themselves from the social conventions about taking turns in talking, for example.

    2. GRANDIOSE SELF-WORTH — a grossly inflated view of one’s abilities and self-worth, self-assured, opinionated, cocky, a braggart. Psychopaths are arrogant people who believe they are superior human beings.

    3. NEED FOR STIMULATION or PRONENESS TO BOREDOM — an excessive need for novel, thrilling, and exciting stimulation; taking chances and doing things that are risky. Psychopaths often have a low self-discipline in carrying tasks through to completion because they get bored easily. They fail to work at the same job for any length of time, for example, or to finish tasks that they consider dull or routine.

    4. PATHOLOGICAL LYING — can be moderate or high; in moderate form, they will be shrewd, crafty, cunning, sly, and clever; in extreme form, they will be deceptive, deceitful, underhanded, unscrupulous, manipulative, and dishonest.

    5. CONNING AND MANIPULATIVENESS- the use of deceit and deception to cheat, con, or defraud others for personal gain; distinguished from Item #4 in the degree to which exploitation and callous ruthlessness is present, as reflected in a lack of concern for the feelings and suffering of one’s victims.

    6. LACK OF REMORSE OR GUILT — a lack of feelings or concern for the losses, pain, and suffering of victims; a tendency to be unconcerned, dispassionate, coldhearted, and unempathic. This item is usually demonstrated by a disdain for one’s victims.

    7. SHALLOW AFFECT — emotional poverty or a limited range or depth of feelings; interpersonal coldness in spite of signs of open gregariousness.

    8. CALLOUSNESS and LACK OF EMPATHY — a lack of feelings toward people in general; cold, contemptuous, inconsiderate, and tactless.

    9. PARASITIC LIFESTYLE — an intentional, manipulative, selfish, and exploitative financial dependence on others as reflected in a lack of motivation, low self-discipline, and inability to begin or complete responsibilities.

    10. POOR BEHAVIORAL CONTROLS — expressions of irritability, annoyance, impatience, threats, aggression, and verbal abuse; inadequate control of anger and temper; acting hastily.

    1. F. Beard

      Psychopaths are not the problem. Banking itself is inherently crooked. There is no such thing as a “respectable banker”; “It’s a Wonderful Life” not withstanding.

  16. ECON

    Excellent expose of J. Dimon. Since 2004 the banksters have made Congress and Executive and Supreme Court part of their portfolio to invest in…hence there will probably be no blowback in Dimon’s face of cyanide.

  17. Fatherland Security Department

    “Fake heroes like Bernie Kerik, Rudy Giuliani, and, yes, George W. Bush raced to cash in on the horror.” – Krugman

    “And they needed a criminogenic larcenist like Dimon to help finance the war effort.” – Anonymous

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