September 12, 2011

JPMorgan’s Dimon Blasts Banking Rules, Krugman Blasts Dimon

Are capital requirements ‘anti-American’ or is regulation needed?

JPMorgan Chase CEO Jamie Dimon. (Photo: AP) JPMorgan Chase CEO Jamie Dimon. (Photo: AP)

As U.S. banks heave under mortgage lawsuits and foreclosures and European banks teeter on sovereign debt woes, JPMorgan Chase CEO Jamie Dimon says Asian banks are poised to gain market share in the face of further pressure from global banking rules. In an interview with the Financial Times, Dimon called Basel III capital rules “blatantly anti-American” and suggested the U.S. should consider withdrawing from the global regulatory group.

Dimon’s comments quickly started making waves in the financial blogosphere, with Nobel Prize-winning economist and New York Times columnist Paul Krugman suggesting the JPMorgan chief unintentionally parodied himself as a demagogic fat-cat banker by suggesting that bank regulation is un-American. Krugman has long held a view opposite to that of Dimon, arguing in 2009 that bank regulation should be in proportion to the scope of a bank’s activities. And last year on April 1, in a blog post titled “Jamie Dimon Is Right About Everything,” Krugman wrote simply: “April fool!”

The Basel III accord, negotiated by nations represented in the Basel Committee on Banking Supervision, holds banks to higher capital and liquidity standards in an effort to forestall another global financial crisis. Whereas Basel III standards require banks to raise core Tier 1 capital to 7%, systemically important financial institutions have to raise their core Tier 1 capital to 9.5%.

According to the Financial Times, Dimon objected to the higher reserve for big banks and to the standards for calculating capital. He also said Basel III liquidity rules are calculated in a manner disadvantageous to U.S. financial institutions.

The British newspaper quoted Dimon saying, “I think any American president, secretary of Treasury, regulator or other leader would want strong, healthy global financial firms and not think that somehow we should give up that position in the world and that would be good for your country. If they think that’s good for the country then we have a different view on how the economy operates, how the world operates.”

While most of the immediate reaction to Dimon’s remarks, such as blog posts in The Wall Street Journal and The Atlantic, were negative, CNBC’s John Carney defended Dimon, citing technical considerations relating to covered bonds.

European Commissioner Michel Barnier assailed Dimon’s remarks, reminding U.S. regulators that insufficient capital requirements and liquidity are what triggered the financial crisis that global markets are now fighting.

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