Jamie Dimon: Looser capital rules are good for the market

JPMorgan Chase CEO Jamie Dimon said Friday that broad capital reforms, widely anticipated during the Trump administration, would free up “hundreds of billions of dollars” for his bank to lend out annually, while also pumping stability into the financial system.

Modifying specific rules — such as excluding Treasuries from certain capital requirements — will not only help banks, but also ease pressure on the markets, Dimon said during JPMorgan’s first-quarter earnings call.

“I believe you can have a safer system, lend more money, have more liquidity, eliminate bank runs, eliminate what happened to First Republic and Silicon Valley,” Dimon said, referring to two banks that failed in 2023. “And you could accomplish all of that with completely rational and thoughtful regulations.”

JPMorgan built a comfortable capital cushion in recent years as it prepared for previously proposed requirements that now seem unlikely to come to fruition. Dimon said in his annual letter to shareholders earlier this week that “now is a good time to retain lots of extra capital and liquidity,” but on earnings calls he has signaled that the bank doesn’t want to further shore up its capital.

Last quarter, JPMorgan started to reduce its Common Equity Tier 1 ratio, a key measure of capital, for the first time in years.

The leader of America’s largest bank has often lambasted current regulations. But after a stir in the Treasuries market this week, Dimon’s prescriptions for capital rules seem especially prescient, Piper Sandler analyst Scott Siefers told American Banker.

“It seems like there’s a lot of capital that’s just trapped in the system,” Siefers said Friday. “Presumably for us to have a more robust macroeconomic recovery, we’re going to need that capital to get utilized more productively.”

As JPMorgan starts to deploy its roughly $30 billion to $60 billion in excess capital — the actual amount depends on which regulation is being applied — the bank’s management has maintained that its top priority is organic growth, like adding branches, technology and products. Each $1 of capital can make several dollars worth of loans, Siefers said — explaining the math on Dimon’s estimate of “hundreds of billions of dollars” in lending across lines of business.

Broad regulatory changes likely wouldn’t lead to an expense decrease that shows up in JPMorgan’s earnings, Dimon said. But the revisions would “free up capital and liquidity to fund the system,” and could reduce the costs of liquidity, loans and mortgages, he said on the call.

Dimon’s latest comments on the regulatory landscape came after the bank announced solid quarterly results, with revenue from its markets business buoying still-tepid net interest income. Earnings per share of $5.07 blew past consensus analyst estimates of $4.64, according to S&P. The bank reported profits in the first quarter of $14.6 billion, up 9% year over year.

Trump administration tariff policies that rattled Wall Street in the first few weeks of April haven’t yet caused big hits to JPMorgan’s balance sheet. But the bank did increase its reserves by $1 billion on concerns of changes in the macroeconomic outlook.

Dimon said that he doesn’t think all the uncertainty that’s been putting clients on edge will be resolved in the next few months. But solidifying trade policy would be the best way to quell fears, he said.

JPMorgan economists, as of Friday, estimate the odds of a recession at about 50-50, according to Dimon.

SLR specifics

The disturbance in the bond market earlier this week — apparently one of the main factors that led President Donald Trump to walk back some of his tariffs — has revived arguments in favor of changing a capital requirement called the supplementary leverage ratio.

Dimon said in his recent letter to shareholders that the SLR and capital rules for global systematically important banks treat Treasuries as “far riskier than they are.”

“JPMorgan will be fine with or without an SLR change,” Dimon said Friday on the earnings call. “The reason to change some of these things is so the big market makers could intermediate more in the markets. … When you have a lot of volatile markets and very wide spreads and low liquidity in Treasuries, it affects all other capital markets.”

Piper Sandler’s Siefers affirmed that the SLR isn’t a binding constraint for megabanks like JPMorgan, which are far more beholden to Common Equity Tier 1 ratio thresholds.

Federal Reserve Chair Jerome Powell has signaled the central bank is game for looking at SLR rule changes, in order to benefit the Treasuries market.

The last major disruption in the Treasuries market came at the beginning of the pandemic, and the Fed responded by temporarily allowing banks to nix Treasuries from SLR formulas amid massive amounts of U.S. debt issuance and stimulus programs. The exemption ended in 2021.