Sometimes regional Fed presidents write snarky blog posts more or less calling major bank executives two-faced phonies.
Wait, that never happens. What the hell is going on here?
The above is an actual screenshot of an actual post Minnesota Fed President Neel Kashkari actually dropped on his favorite new monetary policy tool: his Medium blog. The occasion is Jamie Dimon's annual letter to shareholders, which this year took on a magisterial tone of concern as the JPMorgan chief executive surveyed the regular people of our great nation and found them ill-at-ease, desperately wanting for economic solutions like lower capital requirements for too-big-to-fail banks – which actually aren't even TBTF anymore, Dimon wants us to know.
First, Mr. Dimon asserts that “essentially, Too Big to Fail has been solved — taxpayers will not pay if a bank fails.” Second, Mr. Dimon asserts that “it is clear that the banks have too much capital.” Both of these assertions are demonstrably false.
The crux of the argument is Dimon's contention that banks have more than enough of a backstop, bondholders included, to weather the kind of crisis hypothesized by the Fed's stress tests. Kashkari responds that only equity can really provide a dependable enough cushion in the midst of a meltdown – and in fact, JPMorgan et al could use even more equity capital.
But it's Kashkari's response to the banks-aren't-lending-because-of-capital-requirements argument where the Fed president really finds his rhetorical groove:
Mr. Dimon argues that the current capital standards are restraining lending and impairing economic growth, yet he also points out that JPMorgan bought back $26 billion in stock over the past five years. If JPMorgan really had demand for additional loans from creditworthy borrowers, why did it turn those customers away and instead choose to buy back its stock?
Zing! Though to be fair, it's not clear how persuasive that argument is in regards to a bank chief whose job it is to maximize shareholder returns, not provide a community service. If the cost of providing these loans isn't worth the shareholder returns they provide relative to straight-up buybacks – whether because of lending regulations or whatever else – then why would a bank engage in them?
Yet that's actually where the argument has some merit, thanks to the shareholder letter. Jamie writes his missive with the air of a concerned philanthropist eager to solve intractable economic issues, not a simple profit-making banker. But if he's going to agonize and moralize over all the hard-working everyday folks who can't get mortgages and business loans because of big bad Washington, he's going to have to answer for his bank's own practices – like, say, spending tens of billions of dollars buying its own stock instead of backstopping loans to those hardworking everyday folks he apparently cares about. The Jamie Dimon of the shareholder letter wants to have it both ways. Real-life Jamie Dimon can only have it one way.
Anyway, Kashkari lands his best shot in the final section, an exhaustive survey of the common ground between the two. Here it is in full:
Areas of agreement
Mr. Dimon calls for reducing regulatory complexity, and I agree with this principle. In fact, a higher equity requirement produces the most protection for taxpayers in the simplest, most effective way. Once we have addressed TBTF by forcing large banks to fund themselves with far more common equity, I believe we can streamline other regulations, especially on small banks that have been severely burdened with regulation, but do not pose a systemic risk to society.
You can almost hear Kashkari agonizing over whether to add “...unlike some banks I know” to the end of that paragraph.
JPMorgan declined to comment.
Jamie Dimon’s Shareholder (Advocacy) Letter (Medium [again , seriously])