Swimming not drowning

Swimming not drowning

Bond market has ability to adapt

Digital banking: Special focus

Digital banking: Special focus

Big data, analytics and technology

October 2011

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Macaskill on markets: Self-styled King of Wall Street taints his crown

Central bankers seem to have had just about enough of Jamie Dimon’s spittle-flecked rants about the dangers of increased regulation. The JPMorgan chief executive lambasted Federal Reserve chairman Ben Bernanke over the costs of regulation in a public debate in June, then followed up by arguing with Bank of Canada governor Mark Carney during the recent IMF/World Bank meetings in Washington. Dimon has also warned that some reforms are “anti-American”.


Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks

Jon Macaskill is one of the leading capital markets and derivatives journalists, with over 20 years’ experience covering financial markets from London and New York. Most recently he worked at one of the biggest global investment banks

Carney’s response was widely reported. "Everyone is claiming to be a boy scout while accusing others of juvenile delinquency. However, neither merit badges nor detentions will be self-selected but, rather, determined by impartial peer review and mutual oversight," he said in a speech to the Institute of International Finance, the banking industry group, at the Washington gathering.

A similar sentiment had been expressed to less attention two days earlier by Bill Dudley, president of the Federal Reserve Bank of New York, and Dimon’s home-town regulator.

Dudley concluded an anodyne speech about the pace of reform with what appeared to be a plea for temperance on the part of Dimon.

"Banking leaders and industry trade groups should propose smart solutions to achieve essential financial stability objectives and not simply lobby against change. The industry has an interest in a healthy financial system that can withstand shocks and adverse economic circumstances. More statesman-like engagement is both warranted and welcome," Dudley said.

If that was a call for restraint from Dimon – who sits on the board of the New York Fed – then it was embarrassingly rebuffed. Dudley had barely issued his request for everyone to get along before Dimon was tussling with Carney.

Public disagreements between senior regulators and bank CEOs are highly unusual and could be taken as a sign that Dimon is starting to take the King of Wall Street headlines too seriously.

There may be method in Dimon’s apparent madness, though, based on his take on how the coming US election can be used to weaken the impact of financial reform.

In the week after the broadside against Carney, reports emerged that Dimon had held a meeting with Republican presidential candidate Mitt Romney. Neither party would obviously benefit from an endorsement or financial contribution by Dimon, who supported Obama in the last election. Public backing from the face of Wall Street would not help Romney, who is battling to shed his privileged image as a former venture capitalist with Republican primary voters. Nor would a public split with the administration suit Dimon, even if his disillusionment with the White House is obvious.

The semi-public dalliance with Romney will help to remind politicians of both parties that Wall Street financial backing is very much up for grabs at the moment, however.

With a Republican majority in Congress, Wall Street already has allies willing and able to stall the pace of change, such as Spencer Bachus, chairman of the House financial services committee, who is trying to dilute the impact of the Dodd-Frank reforms.

Democrats looking to raise Wall Street funds before the election might follow suit, potentially adding to the drumbeat of criticism of the Fed if JPMorgan can convince politicians that the details of regulatory reform could put US banks at a disadvantage to foreign competitors.

But Dimon is playing a dangerous game with this approach. For one thing, regulators might fight back. The speech Carney delivered soon after his disagreement with Dimon contained a withering rebuttal of a recent estimate of the potential cost of reform by the Institute of International Finance. Bank of England officials including governor Mervyn King have also shown signs of exasperation with scaremongering by banks. Regulators outside the US might be able to stiffen the resolve of Fed officials such as Bernanke and Dudley, even if their own central banks play a less important role in global supervision.

The greater potential risk is that Dimon’s aggressive tactics will exacerbate the growing distrust between financial institutions in different countries and undermine confidence in the ability of regulators to liaise effectively just as market strains are worsening.

That would be a disastrous outcome for JPMorgan – a firm that is heavily reliant on the performance of its global investment bank and runs the biggest derivatives trading book in the world.




Final days of Ricardo Salgado and Banco Espírito Santo

Euromoney Pulse Survey: Renminbi’s internationalization continues apace
When BES collapsed earlier this year, markets briefly feared a return of the crisis to Portugal and to Europe. Even after the bank's bailout, investigators still pore over bank documents, transfers and deals, trying to make sense of Salgado’s last days battling to keep his empire afloat. The backstory is of an extraordinary decades-long rivalry between the country's two pre-eminent business families.