BREAKINGVIEWS-Jamie Dimon angles to become too big to lose

By Stephen Gandel

NEW YORK, April 6 (Reuters Breakingviews) - Fairness, like beauty, is in the eye of the beholder. As CEO of $800 billion JPMorgan JPM.N, Jamie Dimon already runs a bank that is too important to fail. Even after largely winning a massive regulatory battle, he insists that remaining rules are “un-American,” claiming they penalize success. There really are advantages to unfettered scale, but his vision is one of compounding advantages for Wall Street.

The broadside came as part of Dimon’s annual letter to JPMorgan shareholders. This year’s missive — the storied CEO’s 20th edition — ticks through the major issues of the day. He says that artificial intelligence is both necessary and inflationary; that U.S. wars are a drag on the global economy; and that government investment in research is essential.

As usual, Dimon also touched on regulation. The difference, this year, is that a proposal to implement the Basel endgame, an international rule-making pact, has finally taken shape. Big institutions like his lobbied to prevent sweeping changes from further constricting their activities. On that front, they notched a big success.

To his credit, the JPMorgan boss acknowledges that a big bank failure would harm Americans. But he also claims that major lenders are still disadvantaged just because of their size, and that this hurts small businesses and lower-income customers.

The argument, essentially, is that the biggest banks can best weather turbulence, while less-stable institutions get a leg-up. To resolve this perceived problem, Dimon proffers “new ideas.” For instance: restrict the ability to hold securities without recognizing paper losses — a big issue at ultimately doomed Silicon Valley Bank — to only those lenders with sufficient long-term debt. Or mandate depositors take a 5% loss of their uninsured deposits when an institution fails.

Dimon’s proposals have their merits. Their common attribute, though, is that giants like JPMorgan benefit the most. Most small banks rely solely on deposits for funding, and have no traditional debt. A 5% loss rule might tempt big depositors toward the nation’s largest lenders, which watchdogs would almost surely never allow to fail.

Economies of scale do matter, and bigger banks can drive down costs. Dimon is not alone in arguing that they provide the safest, best, cheapest services. But small lenders and upstarts also offer innovation and choice, as well as roots in communities. As losses from the overheated trading of the JPMorgan trader dubbed the London Whale show, Wall Street titans also dabble in unique risks. Tilting the playing field towards them would incur costs, even if they seem insignificant from midtown Manhattan.

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CONTEXT NEWS

JPMorgan CEO Jamie Dimon released his annual letter to shareholders on April 6.