Jamie Dimon's Warning: ‘Repercussions for Years to Come’ (2023 Recession + Banking Crisis)


is the American banking system truly safe and secure yes I mean the banks are extraordinary liquidity extraordinary Capital when the report earnings next quarter the earnings can be quite good in my opinion I don't think this is that kind of Crisis that you're going to have it ongoing forever jpmorgan's CEO Jamie Diamond is certainly not one to be afraid of voicing his opinions in fact.

last year he caused a big stir on the world stage when he described an economic hurricane on the horizon in the United States ,I'm going to change the storm clouds out there every day look I'm an optimist you know I I said there's storm clouds they're big storm clouds there, it's a hurricane but recently he's been grabbing media attention for a completely different reason and this time the message is things are okay the economy isn't that bad and the banks will be all right and this is very interesting to hear from Diamond specifically because well he's right at the epicenter of the U.S banking system he is the CEO of America's largest bank , 

and what's really handy for us investors is that in the past week or so diamond has sat down for an exclusive interview with CNN on the banking crisis and he's also published his detailed annual shareholder letter explaining his views on the economy and by far the biggest takeaway from Diamond's words over the past few weeks is that he genuinely believes the U.S .

banking crisis isn't really a crisis at all and it certainly isn't a 2008 scenario I just read your annual letter that just came out this week and let's dive into the banking crisis because you write a lot about it is the current banking crisis over I I this is not 2008.

 okay this is a much more limited there are only a handful of banks that have this particular problem uh they'll eventually be resolved one way or another, and I think then people should take a deep breath in a week or two a lot of these Banks can be reporting earnings I think they'll probably be pretty good the Federal Reserve made some you know bold dramatic moves to help it easier for some of the issues they had and I'm hoping it will resolve you know rather shortly so Jamie's Point here is that when you look at the banks there were a few that really messed up their risk management, and yes they got punished but when you look at the big players and the banking system as a whole, it's not really crisis mode Silicon Valley Bank for example got caught out because it had a concentrated client base and held a lot of long-term government bonds that weren't hedged and then they ran into trouble when those small number of clients all wanted out at the same time Diamond actually noticed this in his annual letter writing quote regarding the current disruption in the U.S banking system,

most of the risks were hiding in plain sight interest rate exposure the fair value of Health maturity portfolios and the amount of svb's uninsured deposits were always known both to regulators and the marketplace ,the unknown risk was that svbs over 35 000 corporate clients and activity within them were controlled by a small number of venture capital companies and moved their deposits in lockstep .is this a situation like you know Warren Buffett famously said only when the tie goes out you learn who's?

been swimming naked were these Banks swim me naked?yeah so I said there's hiding in plain sight everyone knew about uninsured deposits everyone knew about infrared exposure everyone knew about health and maturity portfolios the only difference the only real difference was we called concentrated clients so Silicon Valley Bank had you know a handful of people controlled 35 000 corporate accounts and they just left you know 140 billion dollars or something or of course a course of two days that's not happening to other.

 Regional Banks and it was when all those clients tried to take out their deposits that the bank obviously didn't have enough cash on hand to meet withdrawals and it collapsed but Diamond notes that the situation is obviously very different in the critical U.S banks they have a diverse number of customers they have hedged their bond portfolios better than svb they are well capitalized and from all accounts so far they have the full backing of the Federal Reserve and throughout this banking episode one place that has really helped me stay updated on all of the news and all of the numbers is Seeking Alpha who are the sponsor of today's videos personally I've been using Seeking Alpha premium which gives you unlimited access to news and Community written articles which has actually really helped me stay informed during the crisis .

and on top of that I've also been able to look over say 10 years of financial data for companies like svb and Signature Bank to actually understand more about how they got into this situation.

banks essentially long story short svb management failed pretty badly to control risk but luckily there isn't really that level of mismanagement throughout the whole financial system according to Diamond but with that said what comes next. do you expect more Banks to fail this year? I I don't know but if there are I don't honestly they'll be resolved and it'll probably be the last of them I think I think again near the end of this particular crisis and fewer financial institutions remember in 08 it was hundreds of Institutions around the world far too much leverage we don't have that huge problems in mortgage markets we don't have that this is nothing like that and the American public shouldn't think that this will resolve and then we should go look at you know what went wrong and fix it you.

know in the clean uh in the light of day and that was one big talking point from Jamie's annual letter that really the public should not be concerned that this is simply another 2008 style Bank crisis he said recent events are nothing like what occurred during the 2008 Global financial crisis which barely affected Regional banks in 2008. the trigger was a growing recognition that a trillion dollars worth of consumer mortgages were about to go bad and they were owned by various types of entities around the world at that time there was enormous leverage virtually ever everywhere in the financial system major investment Banks Fannie Mae and Freddie Mac nearly all Savings and Loan institutions off balance sheet Vehicles AIG and banks around the world all of them failed this current banking crisis involves far fewer Financial players and fewer issues that need to be resolved and he's absolutely right on this point really the bank crisis we've seen play out over the past month or so it's really just a crisis of confidence at a select few,

poorly managed institutions at its core this little Panic is really just a result of some banks being forced to recognize losses on long-term government bonds because interest rates have gone up and then enough people have panicked withdrawn money and those banks have been unable to meet those withdrawals, but this isn't the first time interest rates have gone up, and it's very rare that a bank does an svb and leaves itself so exposed to a rise in interest rates and that's why Jamie recommends everyone.

just take a deep breath ,and when the dust settles make the appropriate regulatory changes but is the crisis where you wrote in your letter repercussions for years to come well that's that's different I think those repercussions are regulatory like see and you know acknowledge think obviously we have a problem things need to change ,but you know I'm begging the regulars let's just take a deep breath there are hundreds of rules you know you have to be very careful what do you want in the banking system, what do you want out how?

 do you make it easier for Community Banks and Regional Banks ?how do you reduce their costs not increase their cost on the but also make it safe now of course the skeptic will say hold on this guy is the CEO of a major Bank of course he doesn't want any further regulation and that's a fair comment to make but here diamond isn't necessarily saying he wants no additional rules or regulations he's just saying he wants to avoid a situation where lawmakers just slap new rules on the banking system. before they've properly thought them through in his shareholder letter, he said quote let's be very thoughtful in our reaction to the recent events while this crisis will pass lessons will be learned which will result in some changes to the regulatory system, however it is ,extremely important that we avoid knee-jerk whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended the debate should not always be about more or less regulation but about what mix of regulations will keep.

Americ a's banking system the best in the world such as capital and leverage ratios liquidity and what counts as liquidity resolution rules Deposit Insurance securitization stress testing proper usage of the discount window tailoring and other requirements including potential requirements on Shadow Banks because the recent problems we can also add to this mix the review of concentrated customers uninsured deposits and potential invitations on the use of held to maturity Bond portfolios ideally new rules, and regulations would also make it easier for banks to provide Credit in tougher times so no Jamie is not advocating that nothing be done instead he just wants the Regulators to avoid rushing in a half thought out idea that ends up causing more problems than it solves and in fact in this instance he actually does believe a few more rules could actually help the system you know look it's not again when you talk about regulations that's they're looking at one thing and I'm looking at multiple others ,so they had high liquidity requirements High Capital requirements they met the requirements they had too much interest rate exposure and things should change but they were not out of line but super you know with regulations but it wasn't the regulatory change it was other things and by in life that's going to happen this notion that somehow you can make everything perfect is wrong I know but you don't want a big well-known Banks to collapse no you don't but you also really want is that every now and then something will happen.

and the system can handle it and do course, that's what the yes failure is okay you just don't want this domino effect ,and so when you have a bank run you end up with some kind of domino effect, so I guess my point is we we are close to it get to the point where a bank can fail and it doesn't have this kind of effect okay I think just monitoring changing a few few things can get much much closer to that this is actually a reasonably smart idea that Jamie raises you don't want a system where no banks can fail because then,

Banks start taking more and more risks but on the flip side you don't want A bank's failure to be able to cause a massive domino effect throughout the whole banking system and the whole economy so as Jamie says it's the right mix of regulations that's important not just more or less and that's the other thing to remember generally speaking the more regulations that are implemented the harder it is for healthy competition in a given Market the big players tend to form an oligopoly because it's simply too hard from a regulatory standpoint for a small player to stand up and compete thus they die or they get absorbed by one of the big boys. 

see you guys in the next

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