J.P. Morgan’s Dimon warns next crisis will bring even more volatility

It’s not a matter of ‘if’, but ‘when’… and here’s your latest confirmation.


LONDON (MarketWatch) — You ain’t seen nothing yet, when it comes to market wreckage from a financial crisis, according to J.P. Morgan boss Jamie Dimon.

In his annual letter to shareholders, the bank’s chief executive warned “there will be another crisis” — and the market reaction could be even more volatile, because regulations are now tougher.

He argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Banks could become reluctant to extend credit, for example, and less likely to take on stock issuance through rights offering, which would essentially create a shortage of securities.

Such factors “make it more likely that a crisis will cause more volatile market movements, with a rapid decline in valuations even in what are very liquid markets,” Dimon said in the letter. “Recent activity in the Treasury markets and the currency markets is a warning shot across the bow.”

There’s also the issue of clearinghouses. Clearinghouses sit between the two sides of financial trades and have, since the financial crisis, worked as risk managers for global markets. But that could also exacerbate the next crisis, according to the J.P. Morgan chief.

“Clearinghouses are a good thing, but not if they are a point of failure in the next crisis,” he said. “It is important to remember that clearinghouses consolidate — but don’t necessarily eliminate — risk.”

Full article: J.P. Morgan’s Dimon warns next crisis will bring even more volatility (MarketWatch)

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