Dimon Cites ‘Give and Take’ After Bank Chiefs Meet at Fed









By
Bradley Keoun, Joshua Zumbrun and Cheyenne Hopkins
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May 2, 2012 11:00 PM CT



JPMorgan Chase & Co. (JPM) Chief Executive
Officer Jamie Dimon led Wall Street bosses in a closed-door
meeting to personally lobby the Federal Reserve about softening
proposed reforms that might crimp their profits.
The contingent, which included Bank of America Corp. (BAC)’s
Brian T. Moynihan, 52, and Goldman Sachs Group Inc. (GS)’s Lloyd C. Blankfein, 57, pressed the Fed on rules they said would
overstate trading risks and harm financial markets, the central
bank said yesterday in a statement. They also discussed what
they see as flaws in Fed stress tests designed to gauge the
strength of the nation’s largest lenders. The meeting highlights the magnitude of Wall Street’s
campaign to blunt new regulations. While none of the banks is in
jeopardy, the setting and surroundings -- reporters huddled
outside in the rain as TV transmitter trucks stood by -- evoked
the drama of the September 2008 weekend meetings at the New York
Fed that preceded Lehman Brothers Holdings Inc.’s bankruptcy,
and the 1998 rescue of Long-Term Capital Management LP.
There was a “give and take,” Dimon told reporters as he
left the meeting at the Federal Reserve Bank of New York. He
wouldn’t elaborate as he got into a waiting black Chevrolet
Tahoe. The Fed’s representative, Governor Daniel Tarullo, told
the executives he couldn’t give them feedback on rulemaking
proposals, according to the central bank’s statement.
All Together
“When they are all there, it does drive home the
concerns,” said Douglas Landy, a partner at Allen & Overy LLP
who previously worked at the New York Fed.
According to the Fed’s statement, the bankers “presented
their views” about topics such as the board’s rules to limit
counterparty risk, the stress tests and proposed rules from the
Fed to restrict proprietary trading, known as the Volcker rule.
“Their comments would be considered together with all
other comments and feedback received from other interested
parties,” the Fed said.
Dimon, 56, sought the meeting after the Fed completed its
stress tests of the largest banks in March, according to a
person briefed on the matter who asked not to be identified
because the discussions were private. Tarullo, 59, didn’t get
into debates with the CEOs, who also included Morgan Stanley (MS)’s
James Gorman, 53, U.S. Bancorp’s Richard Davis, 54, and State
Street Corp. (STT)’s Joseph “Jay” Hooley, 55, according to the Fed.
In a public speech earlier in the day in New York, Tarullo
said it was “sobering” to think how much new regulation is yet
to be completed.
More to Do
“My concern has been that the momentum generated during
the crisis will wane or be redirected to other issues before
reforms have been completed,” Tarullo told the Council on
Foreign Relations. “So much remains to be done.”
Firms including New York-based JPMorgan, ranked first by
assets in the U.S., and Goldman Sachs have objected to the Fed’s
proposed 10 percent limit on counterparty risk for the biggest
firms, saying it would hamper credit and cut economic growth.
The cap is stricter than a 25 percent limit in the Dodd-Frank
financial-overhaul law.
The proposal to limit credit exposure is designed to
contain the damage if a large company, foreign government or
bank should fail and threaten to take down other institutions
with it. A firm deemed systemically important couldn’t have more
than 10 percent of its counterparty risk tied to one entity.
Bankers told the Fed in comment letters this week that the
Fed was overstating risks, and JPMorgan said the rule will hurt
its ability to execute some risk-management or hedging
transactions.
Concentration
“Each of these rules are franchise-make-or-break
decisions,” said Karen Shaw Petrou, a managing partner at
Federal Financial Analytics, a Washington research firm. “They
really are redefining the industry.”
Concentration of risk in derivatives was blamed in part for
the banking system’s near-collapse in 2008 by the Financial
Crisis Inquiry Commission’s January 2011 report.
JPMorgan has said the company’s chief investment office,
with a $360 billion portfolio, is responsible for managing some
of the firm’s risks. The unit has made bets so large that the
bank probably can’t unwind them without losing money or roiling
financial markets, five former executives said last month.
On his way into the meeting, Dimon told reporters that
“everything” was a potential topic.
“It’s great that people get together and collaborate, talk
about the facts and the analysis, all in the interest of having
a great financial system,” Dimon said. “The better we do here,
the better it will be for the U.S. economy.” http://www.bloomberg.com/news/2012-05-03/dimon-meets-tarullo-as-banks-lobby-fed-on-softer-rules.html