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Ever since the global financial crisis, there’s been a lot of consolidation among banks. Many of them have gotten larger, but one towers over all. JPMorgan Chase is the biggest of the big banks. NPR’s David Gura reports that critics say JPMorgan’s colossal size raises some major risks.
DAVID GURA, BYLINE: A year ago, as several regional banks teetered on the brink, one person was at the top of the U.S. government’s call list – Jamie Dimon, the longtime head of JPMorgan Chase. Richard Ramsden is the head of U.S. financials research at Goldman Sachs.
RICHARD RAMSDEN: He’s suddenly become the spokesman for the U.S. banking system.
GURA: And the most powerful man in global finance. Dimon has been on Wall Street for more than four decades. And he’s a familiar face not just to other bankers but to policymakers and the American public. Dimon helped hammer out a rescue package for the San Francisco-based First Republic Bank. And then when First Republic failed, JPMorgan bought it in a fire sale with the blessing of regulators. At a business conference shortly after that deal went through, Dimon said it effectively ended a tumultuous period for the banking sector.
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JAMIE DIMON: I think it’s very good for the American financial system.
GURA: But not everyone agrees with Dimon’s assessment. There is worry an even bigger JPMorgan is not good for the American financial system. Today, the bank has some 80 million customers and trillions of dollars under management. JP Morgan is the largest credit card issuer in the U.S., with branches all over the country.
RAMSDEN: They are a market leader in pretty much every business in which they compete.
GURA: JPMorgan has branched out far beyond traditional banking. Its credit card customers, for instance, can use their rewards points to buy Apple products on Chase’s app and book travel. And Dimon believes one of the secrets to the success JPMorgan has enjoyed is its size and scale, as he told CNBC recently.
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DIMON: You know, we bank small companies, large companies. We bank the IMF, the World Bank. We bank cities, schools, states, hospitals. We bank companies in 30 countries.
GURA: One way it’s grown is through acquisitions, according to Mark Williams, who’s a lecturer in finance at Boston University and a former bank examiner. JPMorgan bought Bear Stearns and Washington Mutual when those firms failed in 2008.
MARK WILLIAMS: Its playbook of success has really been based on its ability to sit on the sidelines, wait for a banking crisis – sort of like a great white shark – swoop in quickly, seek strong government concessions and then buy these assets at cheap prices.
GURA: Which is what JPMorgan did again last year when it acquired First Republic Bank, which was widely known for its wealth management business. That move may have been good for JPMorgan, but it angered critics, including Democratic Senator Elizabeth Warren, who took financial regulators to task for allowing that sale to go through.
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ELIZABETH WARREN: A gigantic, poorly-supervised bank was swallowed up by an even more gigantic bank. And now the biggest bank in the country is about $200 billion bigger than it was before.
GURA: Warren’s argument is the bigger the bank, the bigger the risk it poses.
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WARREN: The single biggest threat to the U.S. banking system is concentration.
GURA: Not surprisingly, Dimon disagrees. Here’s what he said on a call with bank analysts after the sale last May.
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DIMON: We support and want community banks and regional banks. You need big banks too, to do the type of business we do around the world for our larger clients.
GURA: But Simon Johnson, a professor at the MIT Sloan School of Management, takes issue with that claim. He’s an expert on financial regulation.
SIMON JOHNSON: That’s just self-promotion and spin. Look. There’s nothing necessary or essential about the mega banks at the JPMorgan scale.
GURA: Lawmakers, including Warren, are pressuring regulators to make the bank mergers review process more rigorous, and federal agencies say they’re committed to doing that. Earlier this year, the Office of the Comptroller of the Currency announced some proposed changes, which would place more emphasis on potential risks to the whole financial system. David Gura, NPR News, New York. Transcript provided by NPR, Copyright NPR.
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