Annual Report 2022 | JPMorgan Chase & Co

The letter contains a section on BANKING TURMOIL AND REGULATORY GOALS.

My impression:

• well written and more balanced than I recall his reactions during Dodd Frank times post 2008
• The letter notes most of the risks (this time 2023) were hiding in plain sight.
  
  • ed] I share this sentiment that regulation misses the mark on bank management and have written extensively on that.
    

More to come. Meantime here is JP Morgan introduction to this discussion extracted from the letter and the source.

Following is extracted from JP Morgan letter.

BANKING TURMOIL AND REGULATORY GOALS

The recent failures of Silicon Valley Bank (SVB) in the United States and Credit Suisse in Europe, and the related stress in the banking system, underscore that simply satisfying regulatory requirements is not sufficient. Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves. Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known – both to regulators and the marketplace. The unknown risk was that SVB’s over 35,000 corporate clients – and activity within them – were controlled by a small number of venture capital companies and moved their deposits in lockstep. It is unlikely that any recent change in regulatory requirements would have made a difference in what followed. Instead, the recent rapid rise of interest rates placed heightened focus on the potential for rapid deterioration of the fair value of HTM portfolios and, in this case, the lack of stickiness of certain uninsured deposits. Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements. Even worse, the stress testing based on the scenario devised by the Federal Reserve Board (the Fed) never incorporated interest rates at higher levels. This is not to absolve bank management – it’s just to make clear that this wasn’t the finest hour for many players. All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them.

Jamie Dimon’s Letter to Shareholders, Annual Report 2022 | JPMorgan Chase & Co.