2023-04-05 12:23:18 ET
Summary
- JPMorgan Chase & Co. CEO Jamie Dimon produced his annual letter on Tuesday.
- I found this year's Dimon letter relatively disappointing for several reasons, the primary one being Mr. Dimon's failure to discuss to any degree the role of accelerating technology.
- The world is becoming more digital and finance and banking are going to become almost completely digitized in the near future.
- More and more leaders are talking about the recent bank failures and how they are associated with how fast depositors can move money around.
- This emphasis on "speed" is going to take over in the future, and the solutions Mr. Dimon brings to the table provide very little insight as to where he is on the issue.
Tuesday, Jamie Dimon, chief executive officer of JPMorgan Chase & Co. ( JPM ), released his annual letter to shareholders.
Reviews of the letter can be found in the New York Times , the Financial Times , and the Wall Street Journal .
In the letter, Mr. Dimon wrote:
"As I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come."
That is, Mr. Dimon states, "We've come through a lot," but, "there is still a lot more to come."
Furthermore, Mr. Dimon does not lay blame on any one particular participant in the events of the past few years.
Mr. Dimon continues that:
"this wasn't the finest hour for many players."
His main argument seems to be that rule-making "should not always be about more or less regulation," but should rather be about the right "mix of regulations," which also take into account factors such as customer concentration, uninsured deposits, and limitations to accounting practices that have come to light after the recent bank collapses.
Mr. Dimon seems to feel that the banking system will proceed into the future with roughly the same structure, but the "mix" of rules and regulations must be revised so as to meet the needs of the current times.
And, Mr. Dimon is playing a role in the evolving banking structure as he and JPMorgan assist other institutions, like First Republic Bank (FRC), that are experiencing hard times.
That is as far as he goes in this year's letter.
One Thing Left Out
In presenting his picture, Mr. Dimon leaves out one very important factor that several of his peers include in the scene.
Speed!
Jane Fraser, CEO of Citigroup, Inc. ( C ) writes about the recent bank failures:
"Mobile apps and consumers' ability to move millions of dollars with a few clicks of a button mark a sea change for how banks manage and regulators respond to the risk of bank runs."
Steve Schwarzman, CEO of Blackstone, writes about the failures:
"This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble. They responded with huge withdrawals in a very short period of time, collapsing the banks."
And, we find in the Wall Street Journal the accusation:
"The nature of supervision itself has changed, becoming more bureaucratic and process-orientated--just when banking was moving faster."
"The supervisory process has not evolved for rapid decision-making."
In other words, the world has changed, but bank management and the regulators have not changed.
And, this is real.
A couple of days ago, I experienced the efforts of a friend to move over $200,000 from bank accounts to government securities in minutes.
No problem.
It was probably an overestimation to say that it took 15 minutes for the whole transaction to be completed.
This is modern banking.
Mr. Dimon made little or no mention of it in his letter.
And, Mr. Dimon's suggestions all seem to relate to a world that is no longer with us.
The Problem
To me, Mr. Dimon highlights the problem.
The foundation of modern banks is the effort to try and tie the monetary and credit functions of the banking system together.
The structure of the banking system composed around 1933, following the financial collapse connected with the Great Depression and the founding of the FDIC, the structural response of the government aimed at keeping the monetary and the credit system combined within one institution.
Since then, when disruptions hit the banking system, the government continued to adjust and modify the financial structure so that the existing system could stay in place.
So, we got a Band-Aid here and another bank aid over there, all in an attempt to keep the monetary and the credit system tied together.
Hence, we have the banking structure of 2023.
The adjustments and modifications during this time could be made because of the fact that the monetary system...let me call it by its more modern name...the payment system was slow and the government could move into the banking system to slow things down even further when a financial problem had to be faced.
Now, I would contend that the banking system cannot be slowed down by much and, as a consequence the credit function is more vulnerable to what is going on in the payments side of the equation.
This should have been realized as the payments systems became more and more important to the running of banking institutions.
This I had to deal with when I ran banks. And, this fact has been discussed repeatedly during the time that I have been writing this post.
The advancements of information technology certainly has improved what has gone on in the credit function of banks, but the advancement that has taken place there is nothing like the changes that have been seen in payments.
And, it will be noticed that not all the innovations have taken place within the banking system. Non-bank payments schemes proliferate the scene.
Modern commercial banks cannot consider their payment function as a secondary operation these days.
Payments systems can have a life of their own. And, that is what is happening.
So the future is going to be one in which a bank's payment system is at least co-equal with its credit system.
Money...finance...is information.
Information is digital.
The whole world is becoming digital.
Speed is everything in this world.
Banks and bank regulators must take this fact into consideration.
I like JPMorgan's Mr. Dimon. I think he is one of the best, if not the best, in the industry.
I am a little disappointed in this year's letter because I think he is more on top of things than might be surmised from the letter. Many of the things that JPMorgan Chase is doing lead me to think that the bank is further along than his letter might suggest.
Anyway, the future is digital.
Payment systems are going to be big players in this century.
JPMorgan Chase & Co. will be there.
And, so must the regulators.
Hold on to your hats.
For further details see:
The Banking Crisis And JPMorgan: The Jamie Dimon View