Jamie Dimon pens a piece in the Washington Post today arguing against limits on banks getting too big. As he correctly points out, it’s not strictly size that is the problem. It’s interconnectivity and complexity.
As we have seen clearly over the last several years, financial institutions, including those not considered “too big,” can pose serious risks for our markets because of their interconnectivity. A cap on the size of an institution will not prevent that risk. Properly structured resolution authority, however, can help halt the spread of one company’s failure to another and to the broader economy.
While the strategy of artificial limits may sound simple, it would undermine the goals of economic stability, job creation and consumer service that lawmakers are trying to promote. Let’s be clear: Banks should not be big for the sake of being big. Moreover, regardless of a company’s size, it must be well managed. As we’ve seen in many industries, companies that grow for the sake of growth or that expand into areas outside their core business strategy often stumble. On the other hand, companies that build scale for the benefit of their customers and shareholders more often succeed over time.
We’re not surprised that the head of one of the lagest banks in the world doesn’t want firms to be broken up simply because they are too big. Nonetheless, we find little in Dimon’s essay with which to take issue.