Wall Street executives are applauding JPMorgan (NYSE:JPM) chief Jamie Dimon's recent harsh critique of new banking regulations, but so apparently is the target of his attack; Fed chairman Ben Bernanke, the FOX Business Network has learned.
People close to both Dimon and Bernanke say the Fed chairman agrees with the two main contentions Dimon made while speaking with the Fed chairman at a conference in Atlanta last week, namely that overly harsh new banking regulations in the Dodd/Frank financial reform law may be hindering economic growth as banks cut back on business lending, and the uncertainly of how the new rules will be written by Congress is also preventing banks from lending to businesses.
A spokesman for Bernanke would not deny that the Fed chairman agrees with Dimon, and a spokesman for JPMorgan declined comment other than to say that Dimons views are well known both inside the firm and among his colleagues in Corporate America. Dimon has expressed similar sentiment in his annual shareholder letter.
Bernankes opinion of Dimons may have been expressed in his reaction to the JPMorgan chief broadside, according to people close to both men. Dimon caused a stir when he snapped during the conference that there are 300 rules coming -- has anyone bothered to study cumulative effect of all of these things and do you have a fear like I do that we will look at them all, (and) that will be the reason it took so long that our banks and businesses to create jobs?
The Federal Reserve is the primary regulator of banks and large investment banks, receiving even more power under Dodd/Frank to oversee the financial system. But instead of confronting Dimon, Bernanke appeared to agree with him, and at one noting that we are trying to move as expeditiously as we can to develop a new framework -- trying to develop rules that make sense, that are consistent with good practice. but which do not unnecessarily impose costs, or unnecessarily constrict credit.
Later, Bernanke added: I hear what you're saying&there's a trade-off...We have to take steps to make sure we don't have a repeat of what happened. I think we can do that in a way that preserves the key functions of banking, allows credit to be extended, allows banking finance services to be extended, but there is trade-off and you're right to point that out. It's probably going to take a little bit of time before we, over time, figure out where the cost exceeds the benefits.
Bernanke also agreed with Dimons other contention that no one in government has studied the cumulative effect of the new regulations on the economic growth.
Dimons remarks were designed by the JPMorgan chief to start a debate about the impact of the new financial regulations on economic growth, since banks have been criticized by president Obama for not lending enough to small business. Still, Dimon is not without his critics for failing to see the need for tougher regulations following the 2008 financial collapse that resulted from years of excessive risk taking, and forced a massive government bailout of the major banks. While JPMorgan received $45 billion in bailout money, most analysts agree that the firm was one of the healthiest on Wall Street and probably didnt need the extra capital to survive.
Former Treasury Secretary Hank Paulson, the architect of the bank bailouts, has said he forced both healthy institutions like JP Morgan and unhealthy ones like Citigroup (NYSE:C) to take the bailout money as a way to stabilized the entire banking sector.
Since those dark days, the banks have generally recovered from their near-death experience and Dimon has emerged as a key spokesman for the banking industry, gaining credit for steering JPMorgan clear of the massive risk taking that doomed competitors like Citigroup, and regulatory scandals that have been common place at Goldman Sachs (NYSE:GS).
In fact, people close to Dimon tell FOX Business that Dimon made his remarks to Bernanke at the behest of his follow CEOs in the banking business who believe that they dont have the stature to address the impact of over-regulation themselves.
People close to Dimon say they expect him to continue raising the issue as long as hes CEO. Inside JPMorgan, people are speculating that Dimon will leave in the next three to five years, but only after improving JPMorgans share price, which has barely budged above $55 a share since hes been CEO.