One of the most important functions of a central bank is to be a lender of last resort. It is the go-to institution for troubled banks, as seen in the great financial crisis. They also saved the entire economy during the pandemic.
JP Morgan Chase CEO Jamie Dimon is single-handedly changing that narrative.
He was the major controller of US banking during the current earthquake, advised on the rescue of Silicon Valley Bank (SVB), and has emerged as a savior in the fight to save San Francisco’s First Republic. Its stature in the global financial world has never been higher.
In contrast, Jay Powell, chairman of the real US central bank, the Federal Reserve, is under fire for the way the regulation of second-tier regional banks in the US has been relaxed since the financial crisis.
Renaissance man: JP Morgan Chase chief executive Jamie Dimon has emerged as a savior in the fight to save San Francisco’s First Republic
Powell is also under attack for the aggressive way the Fed has raised interest rates – to quell inflation – straining large parts of the US financial system.
Today, the Fed is expected to raise the key range of the federal funds rate from 4.75 to 5 percent by another quarter of a percentage point.
By allowing JP Morgan to pick up First Republic, US regulators broke the rules. The US banking system operates on the principle that no bank should control more than 10 percent of deposits.
The rule was deemed necessary both for competitive reasons and to maintain the pretension that no bank is ‘too big to fail’.
By supporting First Republic by pledging a further £10bn in aid, on top of the £18bn already spent on SVB and Signature, the authorities have flouted the regulations.
The use of the Fed’s discount window, where it exchanges illiquid or loss-making assets for cash, has exploded. Recent data suggests that loans average £93.6 billion each day.
This is more than the peak of £89 billion during the height of the 2007-2008 financial crisis. Such numbers lie to Dimon’s assurances and regulators that now that the First Republic overhang has settled, all is rosy in the yard.
In the midst of unprecedented bank runs, with cash fleeing to safe havens such as money market funds, it’s impossible to say.
Proposals by the Federal Deposit Insurance Corporation to raise the limit on insured deposits above $250,000 (£200,000) and to extend coverage to certain categories of businesses show fundamental flaws.
Stanford University academics estimate the unrealized losses in the US banking system at £1.3 trillion.
First Republic gives JP Morgan access to a whole new layer of wealthy clients in California and Florida. Wealth management is one area where JP Morgan lags behind rival Bank of America, which owns Merrill Lynch and Morgan Stanley.
If Dimon still wanted a chance in politics, at 67 he would be just a youngster and an intellectual leap above those tired old battlehorses Joe Biden and Donald Trump. Dream On . ..
Counterattack to China
HSBC is the British equivalent of JP Morgan. The bank’s profits tripled to more than £10bn in the first quarter, supported by the reversal of past provisions and its strength in a higher interest rate environment.
The opportunistic purchase of SVB’s UK arm, which was bought for £1, contributed to a £1.2bn boost.
Just days before a denouement of the annual general meeting in Birmingham, where Chinese interests seek a break-up of the group, the return of the dividend and a £1.25bn share buyback would clear much of the rest of the share register. side should keep.
CEO Noel Quinn’s plans to simplify the business have been met with regulatory delays in France and Canada, and the current turmoil in the global banking industry isn’t helping. Breaking up the UK’s largest bank is a very bad idea.
Tax increase
Will they ever learn? The claque led by those two Knights, Keir Starmer and Lib Dem leader Ed Davey, has again called for higher windfalls after BP reported first-quarter profit of £4bn.
What they fail to say is that the tax rate on BP’s North Sea operations has reached 75 per cent and has already resulted in a £800 million receipt for the Treasury, including £520 million in the last quarter.
What climate change fighters never mention is that BP is committing £18bn to zero-carbon investments by 2030 – largely in the UK.
Greenwashing, perhaps, but given the budget constraints, the next government could struggle to match that.
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