JPM’s Regulation Plea Means Heads The Bank Wins, Tails The Same

Jamie Dimon, possibly the world’s most influential banker, has proposed that the banking system needs better regulations. Based on what he wrote in his annual letter to shareholders its likely he and his bank, JPMorgan Chase
JPM
, cannot lose.

It’s a case of head’s JPMorgan Chase wins, tails JPMorgan Chase wins. And of course, as CEO of the bank, Dimon will likely succeed, also.

“We want proper transparency and strong regulations,” he wrote.

Regulations were the core theme of his note. The world gets used 24 times.

Current Banking Rules Flawed

In the piece, Dimon highlighted the utterly flawed rules and working framework of the current U.S. banking system, which have done little good in stemming problems.

“Resolution and recovery regulations did not work particularly well during the recent crisis,” the shareholders’ letter states.

He’s correct. The heaps of regulations did little if anything to help stem the collapse of Silicon Valley Bank or the stress that’s rippling through the financial system. Something better is needed.

One notable thought the letter proffered was that banks sometimes need to go bust. “While you don’t want banks to fail all the time, it should be allowed to happen and the resolution should follow a completely prescribed process,” Dimon wrote.

That is a refreshing idea, given that capitalism thrives on constant innovation, disruption, and destruction. It’s a natural cycle. Unfortunately, during the subprime crisis of 2007 to 2009, many people lost sight of that fact. One particular bank leader moaned seemingly endlessly that the government did not rescue his company.

Ideally, what will happen if the government acts on Dimon’s ideas will be sensible but limited new rules. No paperwork for paperwork’s sake. And worthless regulations get tossed.

Mountains of Paperwork Probable

However, such things rarely happen when the government gets involved. It generally becomes a quagmire of bureaucracy in which new, innovative entrants can rarely operate. Competition therefore gets stymied and new ways of doing business get tossed aside. Why innovate when the upstart competition is not biting at your heels?

That’s generally been the impact of new regulations. Rarely have they unleashed the animal spirits that channel entrepreneurial ambition into economic growth.

Who benefits most of the time from new banking regulations? Larger companies, such as JPMorganChase, and other megabanks, can afford armies of high-priced lawyers to help their company navigate what is almost always a byzantine array of government-mandated dos and don’ts.

This latter scenario looks like a far more likely outcome. But either way Dimon and JPM will likely end up on top.