April 5, 2017

Returns to sender

by Breakingviews.

Jamie Dimon’s letter to JPMorgan shareholders makes for a useful bank-reform cheat sheet. The longtime chief executive reprises many old beefs with financial regulation. He now has a more receptive audience with Republicans running Washington. Dimon’s rosy take on rewriting rules should play well even to a president unconcerned by details.

Though he touches on many and varied subjects, bashing the deluge of post-financial-crisis oversight accounts for a significant portion of Dimon’s latest 45-page missive. Bank of America’s Brian Moynihan, Citigroup’s Mike Corbat and others mostly sidestep the subject.

They’re strange omissions considering how the new administration and a GOP-led Congress have made rethinking Dodd-Frank a priority. That clears the way for Dimon to lead on everything from capital requirements to lending shortfalls to mortgage-market restrictions.

Politicians may not pick up on all his points. He makes a good case for reforming or scrapping operational-risk capital requirements that force banks to set aside some $200 billion. He also calls the rule on global systemically important banks “highly flawed and not risk based.” Yet these are not ideal sound bites.

There is no shortage of politically savvy zingers, though. For example, he suggests that removing the surcharge that requires JPMorgan to sock away an extra $15 billion would free up capital for $190 billion in new loans. Dimon further argues that banks are so “afraid” of potential losses that the Federal Reserve’s annual stress test might predict that they “probably” make fewer small-business, middle-market and near-prime mortgage loans.

He reserves special ire for home-loan rules. Dimon says they run past “14,000 pages and stand about six feet tall.” Simplifying them would, he estimates, save the average borrower a fifth of a percentage point in costs and increase mortgage lending by $300 billion a year. Fold in the attendant new construction and that could have added 0.5 percent to annual GDP.

Like any good banker, Dimon is talking his own book. Cutting capital and increasing lending would help JPMorgan’s bottom line. For an administration he is advising and one committed to growing the economy by 3 percent to 4 percent a year, however, it’s an old sales pitch that finally may have some buyers.

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