Jamie Dimon has been allowed to continue as both chairman and
JPMorgan Chase & Co.
). Many would argue that the fight to retain both titles has been
a costly one for Dimon. It leaves his reputation tarnished as a
primary spokesperson for Wall Street. It also draws attention to
the issues that continue to plague the financial system,
primarily the fears evoked by "too big to fail" banks.
Last year, 40% of shareholders had voted to divide Dimon's
duties. This year, that percentage has fallen, but the protests
have been more strident. This despite the fact that JPMorgan has
posted record profits over the last three years while other banks
Such a situation arose when the bank lost $6.2 billion due to its
"London Whale" trading debacle. This did little to curb the
profits of the banking giant, which still made money that
quarter. But Dimon was forced to admit publicly that a "terrible
mistake" had been made.
But the bigger question is: Will simply bifurcating Dimon's role
help? According to
The Wall Street Journal
, assistant comptroller for New York City and a co-sponsor of the
shareholder resolution to split the roles, Michael Garland has
said an independent chairman would be able to more effectively
deal with the concerns of regulators.
This still doesn't strike at the root of the concerns of
investors and observers alike. What would actually help are
systemic changes like the Dodd-Frank Act. That piece of
legislation still remains encumbered by several objections.
Attempts are continuously being made to weaken its various
provisions. First introduced in 2010, the full force of the law
has yet to be felt, as the financial sector approaches different
agencies to object to its various provisions.
The concern over governance at JPMorgan is completely justified.
With $2.4 trillion in assets, it is the largest financial holding
company in the U.S. The effects of the failure of Lehman Brothers
and the financial crisis that followed is still felt in the
monetary stimulus program of the Federal Reserve, which may only
now be coming to an end.
The primary beneficiaries of the bailout were the nation's six
largest banks -
Bank of America Corporation
The Goldman Sachs Group, Inc.
Wells Fargo & Company
) and JPMorgan. According to estimates by Bloomberg, they have
received $102 billion in tax concessions. Others, like non-profit
organization ProPublica estimate that the figure may be closer to
The Dodd-Frank reform was intended to ensure that such a bailout
of big banking would never occur again. It entailed a simple
system to deal with banks headed for failure; outright
liquidation. But the overall perception is far from this ideal.
Most investors are content to invest vast sums in bank bonds at
extremely low rates of interest. This is a clear sign that the
"too big to fail" perception clearly exists.
The perception is shored up even further by a report released by
) in March. The second largest listed U.S. ratings company has
raised the ratings of these six banks because of the perception
that bailouts will still happen.
Higher scores have meant that borrowing has become cheaper for
these banks. Even Fed Chairman Ben Bernanke believes that the
situation is very much the same. Speaking at a press conference
on March 20, he said: "It's not solved and gone…It's still
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These concerns led senators Sherrod Brown and David Vitter to
introduce a seemingly straightforward solution to the problem.
The Brown-Vitter legislation simply requires banks to with assets
in excess of $500 billion to maintain a capital ratio of 15%,
which is nearly twice that of current levels. However, if passed,
such legislation would have very serious implications.
It would mean that banks would have to either conform to these
stringent capital requirements or be broken up into far smaller
entities. In one fell swoop, it would do away with the need for a
more complicated set of regulations. It would also prevent
implicit subsidization of banks in the future.
There is widespread skepticism about whether such a law would at
all reach the Senate floor. Even the specifics of the law - such
as focusing on executive compensation structure - need to be
improved. However, one thing is undeniable: the law puts the
focus squarely on the fact that banks need to hold more equity,
not debt. And that is possibly the only way to address the "too
big to fail" issue.