The turmoil in the financial industry caused by the collapse of Silicon Valley Bank (SVB) is not over yet and will be felt for years, believes JPMorgan Chase CEO Jamie Dimon.
The banker said in his annual letter to shareholders on Tuesday that this turn of events has “significantly changed the market’s expectations, bond prices have recovered dramatically, the stock market is down and the market’s odds of a recession have increased.”
While noting that recent events are nothing like what occurred during the 2008 global financial crisis, Dimon warned that “the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
The recent crisis has “provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative,” according to the JPMorgan chief.
In early March, massive deposit runs caused SVB and Signature Bank to fail within days. A third lender, First Republic, ended up being the recipient of a $30 billion rescue from top Wall Street banks, including JPMorgan, in the form of deposits. The big lenders stepped in amid investor fears that First Republic could become the next US bank to fail. The contagion then spread to Europe, where Credit Suisse soon found itself in trouble and was ultimately taken over by rival UBS in a rushed deal brokered by the country’s central bank.
According to Dimon, the stress on regional banks has led investors and analysts to suggest that the ‘too big to fail’ banks would be beneficiaries of the crisis. He said that JPMorgan wants to strengthen the smaller banks for the benefit of the whole financial system.
“Any crisis that damages Americans’ trust in their banks damages all banks – a fact that was known even before this crisis. While it is true that this bank crisis ‘benefited’ larger banks due to the inflow of deposits they received from smaller institutions, the notion that this meltdown was good for them in any way is absurd,” Dimon wrote.
He called for more regulation in the financial sector, claiming that policymakers should be more wary of potentially pushing some financial services to nonbanks and so-called shadow banks.
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