Carol Realini is an entrepreneur, financial services leader as well as the author of the recently published BankRUPT
Before jumping to discuss the $2B loss by JPMC last week, let’s look at a structural change in banking that contributed to the financial crisis that started in 2008.
Many analysts believe that the late-twentieth-century deregulation of the banking industry (repeal of Glass-Steagall) opened a Pandora’s box of new opportunities for mergers and growth that led superbanks away from their core businesses of deposits and lending, and into the murky realm of dubious financial products and risky investments.
Glass Steagall was put in place after the 1929 Crash. It forced investment banks (risky businesses) and commercial banks (providing deposit and loan services to consumers and businesses) to be separate companies. Repealing this opened up the door to the current financial situation we see ourselves in today. Our “trusted banks”, in the name of investment banking like profits, are juggling both businesses.
As you can see from the $2B loss by JPMC, that juggling didn’t work very well.
JPMC was the super bank that faired the best in the 2008 financial crisis. CEO, Jamie Dimon steered the bank toward avoiding unnecessary risk with the sub-prime debt derivatives unlike many other US superbank’s risker policies.
Yet more recently Jamie and JPMC’s leadership has been rushing for faster growth. According to Bloomberg – “This is Jamie’s new vision for the company…Dimon pushed to invest deposits the bank hasn’t loaned, to seek profit by speculating on higher-yielding assets such as credit derivatives, according to five former executives. Profits surged over the next five years as assets quadrupled to $356 billion”.
The bank can handle the loss of $2B (profits last year were $19 billion). But the bigger issue is public trust and government policies...
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