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As you may remember, Jamie Dimon recently got into a heated discussion about new regulations on banks with Bank of Canada Governor Mark Carney in Washington DC.Now we know more about what he said, thanks to the FT, which also has a great primer on the Basel III capital requirements and why bank CEOs, like Dimon, disagree with the rules that it plans to impose.
Here’s what Dimon said to Carney on September 23, from the FT:
Mr Dimon lambasted Mr Carney – complaining vehemently that the Basel committee’s plan to subject his own and other large institutions to even higher capital requirements than those faced by smaller peers was ill-thought-out and economically and philosophically wrong. He also insisted that some provisions discriminated against US banks.
[And he will -]
… continue to use the phrase “anti-American” [which he first used in a Financial Times interview] because it seemed to resonate with people who might be able to modify the reforms.
Dimon and other US bankers argue against new regulations for a few reasons. One of them is that the rules subject the biggest banks to hold an extra 1-2.5% in capital, which could bring the total amount of risk weighted assets they must hold up to 9.5%. Extra percentage points might sound menial just because they are technically tiny, but they account for an amount that could be loaned out (which would help to spur the economy, for one) or leveraged to hedge risk, or used to help boost profits, etc, that is exponentially larger. So extra points are devastating.Another one of the reasons they object is that they are convinced their European counterparts are cheating by manipulating the way they measure risk in order to reduce their capital requirements.
This might be one way that the rules “discriminate” against US banks. Other ways, cited by the FT:
[The Basel III proposal currently] includes a clause that would make it easier for French banks to count the capital in their insurance subsidiaries towards their overall total…
The EU draft also appears to gut the “leverage ratio” – a measure backed by the US and UK that seeks to keep banks from bulking up their total assets in relation to their equity.
Note: The fight might have actually started last year, when during a speech, Carney cited something that Dimon said to his daughter, and referred to him as a “jaded bank CEO” a year ago on September 14, at the Deutsche Bundesbank’s annual Bundesbank Lecture, in a speech called, “The Economic Consequences of Reforms. He said: “Consider the jaded attitudes of the bank CEO who recounted: “My daughter called me from school one day, and said, ‘Dad, what’s a financial crisis?’ And, without trying to be funny, I said, ‘This type of thing happens every five to seven years.’ Should we be content with a dreary cycle of upheaval? Such resignation would be costly.”
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