Are bankers stopping their regulators from boarding a ‘listening bus’, scared these might wake up and then wake them up?

Sir, Gillian Tett asks: “can lofty chief executives ever find a way to get out of the C-suite and view life from a completely different perspective?” “Jamie Dimon’s ‘listening’ bus? Get on board”

Sir, of course it is good that Jamie Dimon, or anyone else for that matter, tries to listen to different opinions, though a bus is not really needed for that. 

But much more important than Jamie Dimon doing so it would be for the lofty besserwisser bank regulators to walk down Main street in order to learn more about banking, and life.

Then they might begin to understand that it is not what bankers perceive as risky which is dangerous to the bank system, it is what they perceive as safe.

But, being able to hold assets perceived as safe against so little of bank equity, meaning obtaining the highest returns on equity with what’s “safe” and not having therefore to venture into riskier terrains, sounds like a banker’s wet dream come true. Therefore perhaps it is bankers, like Dimon, whom all block regulators from leaving their desks, except for some controlled visits to Davos and Jackson Hole.

PS. As the less equity that needs to be compensated the more room there is for big banker bonuses, I am really not referring to an insignificant wet dream

@PerKurowski

To get our banks back to where we need them to be, we need a complete brand new set of regulators

Sir, since Patrick Jenkins misses out on the very important question of how our banks got here, it is hard for him to understand where they should go. “FT Big Read: Banking: Too dull to fail?” September 9.

We got here because regulators, without doing any type of research, concocted the loony theorem that bank crises were the result of excessive exposures to what was perceived as risky; and therefore imposed risk weighted capital requirements for banks; more perceived risk, more capital – less risk, less capital.

That immediately resulted in that banks, instead of maximizing their returns on equity by means of banking with reasoned audacity, or as Deirdre N. McCloskey would probably phrase it, by banking with courage and prudence, maximized their ROEs by minimizing equity.

And so the real problem is that banks can’t find the way out of their predicaments, unless we get ourselves a brand new set of regulators. Some who know about Voltaire’s “May God defend me from my friends [the AAA rated], I can defend myself from my enemies [the below BB- rated]”; and who know about John A Shedd’s “A ship in harbor is safe, but that is not what ships are for.”

And we need that to happen fast! If we want our kids and grandchildren to have jobs in the future; and if we want to have a real economy sufficiently healthy to help pay for our retirements, dumb regulatory risk aversion imposed on banks is about what we least can afford

Would the UK, and the Western World have become what it is with utilities like banks? Of course not!

PS. Jamie Dimon has still not yet convinced me he is a real banker and not just one of those bank equity minimizing bankers.

@PerKurowski ©

Jamie Dimon should consider the long-term interest of his and of JPMorgan’s shareholders’ children and grandchildren

Sir, Ben McLannahan reports on Jamie Dimon’s letter to JPMorgan’s shareholders’. “JPMorgan chief Dimon warns on dangers of undermining US banks” April 7.

In his letter Dimon argues that tougher rules can weaken the competitiveness of US banks, for instance against the Chinese banks. That’s true! Especially in the short-term.

And McLannahan reminds us that “In 2014 Dimon argued that tougher rules would mean that customers faced more expensive credit, or would be denied certain financial products altogether.” That is also true!

But Dimon must also be perfectly aware that current bank capital requirement rules, for when lending to those ex ante perceived as “risky”, are much tougher than those for exposures to the “safe”.

And I refuse to think that Dimon does not know that distorting the access to bank credit in favor of the “safe” government and the AAArisktocracy, against that of the “risky” SMEs and entrepreneurs, only guarantees to sooner or later weaken tremendously the real economy of US. 

And I also refuse to think that Dimon does not know that no US bank should expect to be able to stand solid amid the rubbles of a ruined US economy… not even JPMorgan.

Dimon states: “The US financial services industry does not conform to simple narratives. It is a complex ecosystem that depends on diverse business models coexisting because there is no other way to effectively serve America’s vast array of customers and clients.”

And surely Dimon knows perfectly well, that a complex ecosystem is not made better by regulators who, with much hubris and little wisdom, believe they can help it with their distorting concoctions.

And so Jamie Dimon, instead of writing a letter to JPMorgan’s shareholders considering their short-term interest, should write them a letter that considers the long-term interests of theirs and his own children and grandchildren.

“A ship in harbor is safe, but that is not what ships are for” John Augustus Shedd 1850-1926 

God make us daring!

@PerKurowski ©

The regulators, by helping bankers have their wet dreams come true, worsened our young’s future perspectives.

Sir, Martin Sandbu writes: “The giants of the US asset management industry have held secret meetings since August to discuss how to push company executives to make more long-term decisions. Participants included veteran investor Warren Buffett, JPMorgan CEO Jamie Dimon, and leaders from Blackrock, Fidelity and other major managed fund providers.”, “From boardroom to Shangri-La”, February 20.

And Sandbu refers to: “Negative externality” is the economist’s term for the harm a company’s activities cause to the world around it… lobbying for government rules that privilege one sector over others may, in the longer term, make the rest of the economy less efficient. Indeed and there are no better examples of that that current bank regulations.

Mark Twain is rumored to have said: “A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”

And with their risk weighted capital requirements of banks, the current regulators added “A banker is a fellow authorized to leverage equity immensely much more when lending out his umbrella when the sun is shining, than when it seems it looks like it could rain.”

And with that banks have now realized their wet dreams of earning much higher risk adjusted returns on equity when lending to the safe than when lending to the risky, like SMEs and entrepreneurs; and with that banks no longer finance the risky future, they only refinance the safer past.

And all for nothing since major crises are never ever the result of excessive exposures to something ex ante perceived as risky, always of something ex ante perceived as safe but that ex post turned out to be risky.

Sandbu also refers to that Yngve Slyngstad, the head of Norges Bank Investment Management stated that “Norway’s sovereign wealth fund demands that boards pay particular attention to climate change, water management and child labour”

Though I generally believe it arrogant and dangerous to intervene in the markets, if Mr Slyngstad really wanted to help, he should then better support purpose weighted capital requirements for banks. Those would allow for higher risk adjusted returns on bank equity when financing something society finds has special merits… like water management and creating jobs for our young ones.

@PerKurowski ©

American Founding Fathers never suspected bank regulatory power to be delegated or outsourced to a Committee in Basel.

Sir, I refer to Gary Silverman’s “Wasting Dimon’s time is the way we do things” January 17.

With respect to the complaints of Dimon about having to cope with too many regulators, Silverman deems this to be “as American as apple pie”; argues that the founders “believed the survival of a popular government depended on keeping any particular faction from growing too powerful”; and quotes James Madison with: “The constant aim, is to divide and arrange the several offices in such a manner as that each may be a check on the other”.

So is the reason why they delegated or outsourced so much of the American bank regulatory discussions and powers into a Basel Committee for Banking Supervision, that some wanted to escape from such checking-on-each-other?

I say this because frankly, the credit risk weighted equity requirements for banks concocted by the Basel Committee, and which so much favors the bank borrowings of the sovereign and the AAArisktocracy, over the bank borrowings of its “risky” not-rated citizens… in the home of the brave seems to be as un-American as can be.

Should the founding fathers have been more aware of this possibility and been more explicit in prohibiting it?

PS. The day SEC delegated to the Basel Committee

Other related links:

http://subprimeregulations.blogspot.com/2010/04/please-explain.html

http://subprimeregulations.blogspot.com/2013/11/have-risk-weights-of-current-bank.html

http://subprimeregulations.blogspot.com/2012/07/complaint-i-presented-to-consumer.html

JP Morgan Chase, Jamie Dimon, welcome to the club! Small businesses and entrepreneurs have been attacked for years!

Sir Tom Braithwaite reports that, because of proliferation of regulators and legal bills, “Dimon says banks ‘under assault’” January 15

Indeed, no question about it, Dimon is absolutely right, but, as I see it, he has to stand in line with his compliant; at least until all those perceived as “risky” have been able to voice theirs, because they have in fact been under attack for much longer.

In those old days when regulators were very chummy with banks, days of Basel II, banks were allowed to hold very little equity against assets perceived as absolutely safe. And that allowed banks to make risk-adjusted returns on equity, on “safe” exposures, we normal citizens could never even dream of. And, in doing so, the regulators de facto removed all incentives for banks to give credit to “risky” small businesses and entrepreneurs. I can almost hear Jamie Dimon asking his Board “Why should we give loans to a “risky” when doing so we can only leverage JPMorgan Chase’s equity 12 to 1, when giving loans to the AAArisktocracy we can leverage 60 times or even more?”

But, that said, the “risky” and the banks do have a mutual complaint they can raise with respect to the fines or the penalties for bank’s misdeeds. Because, were it not for these, banks could have more equity available that could be leveraged with loans to the risky.

Perhaps judges should listen to them and force all bank fines to be placed in special bank equity accounts, available exclusively to be leveraged lending to small businesses and entrepreneurs… and I am sure all unemployed would also support that motion.

Society is still unaware of the real costs of lessening risks and promoting the stability of its banking system.

Sir, John Gapper’s “Regulators are finally catching up with banks”, July 4, in reference to some possible new costs resulting from recent new regulations announced this week by the Fed, just shows how little it is yet understood what is the real “price society and the financial system pays from lessening risks and promoting stability.”

The first cost, is the current bank crisis. It resulted from allowing banks to hold exposures to what was perceived as absolutely safe against absolutely minimum equity, and so that, when some of the perceptions turned out to be wrong, banks were caught with their pants down holding no capital.

The second cost, which could be even larger than the first, are all opportunities lost because of the introduction of regulatory risk-aversion, and which has certainly impeded many small and medium business and entrepreneurs to assist in creating jobs for our youth.

Current bank regulations which still include discrimination based on perceived risk, do not promote stability in the banking system, but the stiffness that causes fragility. Also there is no banking stability worth to write home about, without a sturdy and healthy real economy.

Gapper also refers to Jamie Dimon, chairman and chief executive of JPMorgan Chase, once describing Basel III as “anti-American”. Indeed it is anti-American, but not for the reasons that Dimon probably refers to, but because, in “the Home of the Brave”, these regulations favor “The Infallible” and discriminate against “The Risky”.

The “risky” borrowers should also complain about discriminatory bank regulations

Sir, Shahien Nasiripour and Tracy Alloway report on the concerns of some large US banks with respect to some new capital rules because these “will hurt them relative to overseas competitors” “Fed set to announce capital proposals”, June 7. 

These banks are of course in the perfect right to object any sort of discrimination, but, when will the Financial Times dedicate one single analysis to the discrimination that many borrowers are subjected to, when their bank borrowings give cause for a higher capital requirement than the borrowing of others? 

Does FT really think that a loan to a small business or an entrepreneur, he who already has to pay a higher interest rate and can only access a smaller loan than those who have officially been declared as “not risky” is correct, and does not create distortions? 

If you only report the complaints of the big banks… you are assisting them in becoming too big. 

If FT had complained in time about the fact that a UK bank was required to have 8 percent in capital lending to the grocery down the corner but only 1.6 percent if lending to Greece then perhaps we would not be in the current mess. Who knows? 

The article also reminds us that Jamie Dimon, chief executive of JPMorgan Chase, has decried the new Basel III rules as “anti American”, or un-American as it is usually expressed. But, again, that begs the question, if the American banks, according to Basel II and III, need to hold more capital when lending to American small businesses or entrepreneurs than when lending to foreign sovereigns or corporations deemed as not risky, is that not equally anti American?

Yet Jamie Dimon knows immensely more of his business than the regulators do of theirs.

Sir, in “JPMorgan takes a salutary stumble” May 15, you hold that “Bank’s loss illustrates why its boss is wrong on regulation”. Mr. Dimon must certainly be wrong in many ways, at least I have never thought him or anyone else as infallible, but, let me assure that if it is about getting it wrong on regulations, then the regulators are the champs. 

You mention “reckless practices to reduce risk” and in this I believe we have never ever seen something as reckless as our current regulators. They allowed the banks to hold minimum capital requirements for what they from the outside considered as safer lending than other, without giving a thought to the fact that the perceptions on risks had already been cleared for by the bankers, and that this would alter the whole dynamics of the market. 

If I was a shareholder of JPMorgan I would most probably wish for Jamie Dimon to remain as its head, but, as a citizen, I have no doubt I would sack most of our current dumb regulators. 

Do we not need to reign in the too-big-to-fail? Of course we do! But there are wise ways and there are reckless dumb ways of doing that. A wise way begins by eliminating all the growth-hormones that have made them so big, like ultralow capital requirements, the dumb way is to give them a special treatment, like is now proposed under the systemic approach, and which will only result in making them bigger and more dangerous.

Jamie Dimon, would you help me save my savings, in the shadows, please?

Sir, in reference to John Gapper´s “Jamie Dimon is a whale of a hedge fund manager” May 12, I would not make such a big thing about the 2 billion dollars or so in losses sustained by JP Morgan. 

Allowing the banks to lend out to the “infallible sovereigns” against no capital at all, signifies putting all ours, and our children’s´ and our grandchildren’s’ funds, in a truly mindboggling huge hedge fund where the proprietary dealings are not made by a Jamie Dimon, but by some unknown government bureaucrats… with certainly more skewed incentives…and that I guarantee will be much more harmful for tax payers than whatever a JP Morgan can invent. 

Frankly sometimes I feel the urge of picking up the phone and calling a Mr. Dimon or someone like him, to beg him to help me save my small savings… that is as long as he agrees to do that in the shadows, as far away as possible from our current loony banks regulators.

Basel regulations should be anathema to “the Land of the Free and the Home of the Brave”

Sir Tom Braithwaite and Patrick Jenkins report that JPMorgan chief says bank rules are “anti-American”, September 12. Jamie Dimon is more right than he probably knows, and, also, the anti-Americanism of Basel regulations, started long before Basel III. Just consider the following: 

By allowing banks to leverage more their capital when earning the risk-adjusted-interest-rate from those perceived as “not-risky” than when earning the same rate from those perceived as “risky”, regulators introduced a silly and unproductive risk-adverseness that is not compatible with “the Home of the Brave” 

Allowing banks to leverage immensely more their capital when lending to sovereigns like the USA government, than when lending to American small businesses and entrepreneurs, is communism, and absolutely not compatible with “the Land of the Free”