Jamie Dimon, CEO of US-based bank JPMorgan Chase, has warned that another financial crisis is brewing and it could see more “volatile markets with a rapid decline in valuations” due to tougher regulations.
In his 39-page annual letter to shareholders on Wednesday, Dimon, 59, said the regulatory norms in place with higher capital and liquidity requirements on banks would have unpredictable and unintended consequences.
The stringent requirements would result in banks becoming reluctant to extend credit and less likely to take on stock issuance through rights offering this time, and it would essentially create a shortage of securities, he noted. In the previous crisis, banks underwrote $110 billion of stock issuance through rights offerings.
“There are many new rules, and, in conjunction with current monetary policy, they already are having a large effect on money markets and liquidity in the marketplace,” Dimon said.
He said banks might not be able to act as a “shock absorber” during this crisis. But Dimon believes that they are unlikely to be the centre of the next crisis as they are overall safer and stronger than before.
Moreover, the “non-bank lenders” may take the benefit of new rules by stepping in and “not continue rolling over loans or extending new credit except at exorbitant prices that take advantage of the crisis situation”.
He said in any crisis, investors focus on selling off problem assets and stocking up their money on safe havens like the US treasuries or purchasing very safe money market funds. But, investors will have to look for other places this time to put their capital since the treasury supply in declining.
While pointing out the 40 basis-point move in Treasury securities on October 15, 2014, Dimon said it was “an event that is supposed to happen only once in every 3 billion years or so," However, he noted that an upcoming future crisis could be worsened because there “is a greatly reduced supply of treasuries to go around.”
According to Dimon, the regulators could allow banks to provide liquidity cash on a "graduated basis" and accept more forms of collateral.
Meanwhile, the company announced that its net income in 2014 rose to a record $21.8 billion on revenue of $97.9 billion. The bank is one of the largest asset and wealth managers in the world, with assets under management of $1.7 trillion, as of December 31, 2014.
(Edited by Joby Puthuparampil Johnson)