Jamie Dimon’s insights on regulation

In the new world, our company has approximately 20 new or significantly enhanced balance sheet and liquidity-related regulatory requirements – the most critical ones are the GSIB capital surcharge, CCAR, the Liquidity Coverage Ratio, the Supplementary Leverage Ratio and Basel III capital. Banks must necessarily optimize across these constraints to be able to meet all their regulatory requirements and, importantly, earn a profit. Every bank has a different binding constraint, and, over time, that constraint may change. Currently, our overriding constraint is the GSIB capital surcharge.

The U.S. government requires a GSIB capital surcharge that is double that of our international competitors

Our shareholders should bear in mind that the U.S. government requires a GSIB capital surcharge that is double that of our international competitors. And this additional charge may ultimately put some U.S. banks at a disadvantage vs. international competitors. This is one reason why we worked so hard to reduce the GSIB capital surcharge – we do not want to be an outlier in the long run because of it. In the last year, we took some dramatic actions to reduce our GSIB capital surcharge, which we now have successfully reduced from 4.5% to an estimate of 3.5%.

These steps included reducing non-operating deposits by approximately $200 billion, level 3 assets by $22 billion and notional derivatives amounts by $15 trillion. We did this faster than we, or anyone, thought we could. We still will be working to further reduce the GSIB surcharge, but any reduction from this point will take a few years. Like us, most banks are modifying their business models and client relationships to accomplish their regulatory objectives. We are doing this by managing our constraints at the most granular level possible – by product, client or business. Clearly, some of these constraints, including GSIB and CCAR, cannot be fully pushed down to the client. Importantly, we are focused on client-friendly execution – and we recognize that these constraints are of no direct concern to clients.

Banks change their business models to adapt to the new world

Unfortunately, some of the final rules around capital are still not fully known at this time. There are still several new rules coming that also could impact our company – probably the most important to us is how the GSIB capital surcharge is incorporated into the CCAR stress test. To date, we have manage to what we do know. We believe that when the final rules are made and known, we can adjust to them in an appropriate way. As banks change their business models to adapt to the new world, some are exiting certain products or regions. Market shares will change, and both products and product pricing will change over time. Therefore, we think there will be a lot of adjustments to make and tools to deploy so that we can still serve our clients and earn a fair profit.

Compiled by Vincent Paes

You can also read the original letter to the shareholders.

Already published:

• Innovation

To come:

• Interest rate
• Big data & Privacy protection
• Art of governance