Jamie Dimon on Fintech: Banking system as we know it is shrinking relative to private markets and Fintech

The most respected bank executive in the world, Jamie Dimon, CEO of JP Morgan Chase (NYSE:JPM), posted his annual shareholders letter today. The letter covered a wide range of topics, including politics and policy. Dimon’s opinion is widely followed in the financial services world, as he has emerged as a steady hand and valued perspective on both the domestic and global economy.

Of note for this publication are Dimon’s ruminations on Fintech or innovation in financial services driven by technology.

Dimon noted that traditional banks are getting smaller – when compared to Fintechs and private markets. Dimon stated:

“It is also important to recognize that the banking system as we know it is shrinking relative to private markets and Fintech, which are growing and becoming increasingly competitive. And remember that many of these new players do not have the same transparency or need to abide by the extensive rules and regulations as traditional banks, even if they offer similar products — this often gives them [a] significant advantage.”

Dimon mentioned Apple (NASDAQ:AAPL) by name, labeling it a bank as it “holds money, moves money, lends money and so on.”

“Nonbanks are competing with traditional banks, and, in general, this dynamism and churn are good for innovation and invention — with success and failure simply part of the robust process. Innovation runs across payments systems, budgeting, digital access, product extensions, risk and fraud prevention, and other services.”

Dimon said that scale helps in competing today whether you partner, build, or acquire. Alluding to regulatory concerns about big banks getting bigger, Dimon said:

“What is clear is that banks should be allowed to pursue their individual strategies, including mergers and acquisitions, as they see fit. Overall, this process should be allowed to happen — it’s part of the natural and healthy course of capitalism — and it can be done without harming the American taxpayer or economy.”

He went on to criticize the looming Basel III “endgame” rules as “flawed and poorly calibrated.” He worries that Basell III will have “unintended consequences” as there will likely be fewer banks as it will propel consolidation. Basel III will also make financial products more expensive – think, loans, market making and hedging.

This is something many or most of his bank executive peers would agree with.

Dimon also touches on policy and geopolitical challenges. This year’s letter shares his hopes for the near future including:

  • Consistent tax policies, conducive to both employment and capital investment.
  • Well-conceived regulations (and related laws)
  • Timely permits on projects large and small
  • Proper federal government budgeting and fiscal management.

He adds that the US should celebrate American exceptionalism which include the principles of capitalism, free speech and freedom in general. Dimon asks that we stop demeaning “whole classes of voters” alluding to Trump supporters and cautions against weaponizing government authority.

Dimon adds:

“…our highly charged, emotional and political domestic issues are centered around 1) immigration and lack of border security and 2) the fraying of the American dream, particularly for low-income and rural Americans who feel left behind amid the growing wealth and prosperity of others around them.”

Internationally, Dimon believes we need to be tough on China but also engage. He does not mention the potential for armed conflict but notes that China’s leadership has an intense focus on national security and the military. As for Ukraine, he expresses his understanding that failures at home lead to questions as to intent in the US’s forays abroad.

Dimon has been  mentioned as a possible Secretary of Treasury in the past, for either party, something he has yet expressed an interest to pursue.

You may read the entire letter here.

 

 


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