In what might be shaping up as the battle of the bankers, a heavy hitter in the industry is taking aim at JPMorgan CEO Jamie Dimon’s comments earlier this week about the state of financial firms.
As CNBC reported, Neel Kashkari, who serves as Minneapolis Fed president, is “taking on” Dimon, the financial arena’s “perhaps most well-known and powerful name,” in a spat over what Kashkari has called Dimon’s “demonstrably false” statements about financial firms.
Dimon said among other things in his annual letter to holders that “too big to fail” no longer remains a worry on the heels of capital bolstering efforts and increased regulations governing banking — as banks can convert debt to equity to use as reserves in a crisis. Yet Kashkari takes issue with that characterization.
The Minneapolis banker stated in a blog posted to Medium.com that “capital standards are higher than before the last crisis” but need to be taken higher. He put the odds of a future bailout in the next half century at roughly 70 percent. The Fed has stated that banks should be able to handle asset declines of 20 percent in a crunch, and Kashkari has said that capital standards have to be boosted by as much as double the current levels in order to provide such a buffer.
“The most recent crisis showed that even some debt holders who had been explicitly told that they would take losses during a crisis got bailed out,” he said in the post. “Only true equity should be considered loss-absorbing in a crisis. The largest banks do not have enough equity today to protect taxpayers,” Kashkari added. “Too big to fail is alive and well. Taxpayers are on the hook.”