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April 11, 2014

JPMorgan Is Keeping Busy

“A bank’s financial statements don’t measure the health of its children or the joy of their play, the beauty of its poetry or the strength of its marriages, the intelligence of its boardroom debate or the integrity of its executives. Honestly, they barely even measure its assets and liabilities. But JPMorgan is breaking new ground in what measures it chooses to report to shareholders, with this magnificent chart from Jamie Dimon’s letter in its annual report:1 “

“Hours! One million hours on resolution planning!2 Four hundred people for liquidity planning! Also, workstreams, there are some workstreams.”

“Dimon’s letter is a fascinating document. Since it’s a Jamie Dimon production, there are some amusingly tone-deaf moments,3 but overall it’s really good. Among other things, it’s his most sustained and quantified complaint about financial regulation yet. The gist is that everything has trade-offs: Every action that regulators have taken to make banks safer has also imposed some cost on the banks. And, banks being banks, the incidence of those costs is unlikely to be on shareholders or employees. Instead, customers will pay for them, or risks will be pushed to other bits of the financial system.”

“Wholesale deposits, for instance, will be a money-loser due to new leverage and liquidity rules; “therefore, over time, banks probably will minimize this type of deposit, and clients will seek other alternatives, probably in the money markets.” (Scary money markets!) Undrawn revolvers will incur new capital and liquidity charges, and will become up to 60 basis points more expensive, so “Banks will either have to charge more for this product or focus more acutely on the nature and value of the particular client relationship as a whole in considering whether to make revolvers available to that client.”4

“There’s lots more of this, and it is consistently interesting. You can accept that it is in JPMorgan’s interests to exaggerate these costs of regulation without rejecting the basic point: There will be some costs. And exactly what those costs will be, and how the financial system changes to flow around them, will be perhaps the most important financial story of the next few years. JPMorgan’s view of that story is biased, of course, but it’s also an unusually broad and well-informed view. So it’s worth a read.”

“Because really the best thing to do with that chart is just to let the enormous magnitude of the numbers wash over you. There are so many of them, but each number represents its own crazy story. That one million hours a year devoted to resolution planning is 500 full-time employees.5 You could start a good-size boutique bank with the people who come into work every day of every year to prepare for the day that JPMorgan goes bankrupt. There are 8,000 employees “dedicated solely to building and maintaining an industry-leading Anti-Money Laundering (AML) program.” JPMorgan employs more AML compliance officers than the Treasury and the Fed combined.6 “


Read full Bloomberg View article here.

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