Theres a common saying on Wall Street thats often repeated during periods of high inflation and rising interest rates. It goes something like this: The Federal Reserve will raise ratesuntil something breaks.
Last month, that something was Silicon Valley Bank (SVB). The rapid collapse of tech startups favorite lender, along with fellow mid-sized U.S. banks Signature Bank and Silvergate Bank, led to instability in the banking system, forcing regulators to step in and rescue depositors. The crisis also ultimately put the final nail in the coffin of Credit Suisse, which had been ailing for years, forcing fellow Swiss lender UBS into a takeover.
The good news is JP Morgan Chase CEO Jamie Dimon, who is often seen as the voice of the financial industry, believes the fallout from the crisis is likely overeven if the Fed doesnt cut rates. Could there be more bank failures? I dont know, Dimon told CNN Thursday. But if there are, honestly, theyll be resolved. I think were getting near the end of this particular crisis.
Dimon reiterated his view that the issues that led to the collapse of SVB were hiding in plain sight and should have been spotted by the banks management. He said that in the industry, everyone knew about the dangers of rising interest rates and uninsured depositors that took SVB down. SVB also had a concentrated base of venture capital clients that controlled 35,000 corporate accounts and they just left$140 billion or something over the course of two days, Dimon noted. Thats not happening at other regional banks.
As the only major bank CEO who was at the helm of his firm during the Global Financial Crisis of 2008, Dimon emphasized that the latest banking crisis is nothing like that episode either.
This is not 2008. This is much more limited. There are only a handful of banks that had this particular problem. It will eventually be resolved one way or another. I think people should take a deep breath, he said, arguing that many banks will turn in pretty good earnings over the next few weeks despite the crisis.
Dimons comments echo those of the famed short seller Jim Chanos, who told Insider last week: This was NOT a systemic eventit only affects a few really dumb, greedy institutions. And Americans seem to agree that the recent bank instability has mostly been controlled. A new Harris Poll found that more than 90% of depositors believe their money is safe in U.S. banks.
Still, Dimon acknowledged that the very public failure of multiple banks will lead to tighter credit conditionsmeaning fewer loans for businesses and consumersand he argued that amounts to yet another storm cloud for the economy, increasing the odds of a recession.
For nearly a year now, the CEO has said that the U.S. is facing a multitude of serious risksincluding war, inflation, and rising interest rateswhich have the potential to spark a recession. But Dimon has never tied himself to a specific recession forecast, and he continued that trend Thursday, telling CNNs Poppy Harlow that its not definitive. Its just like another weight on the scaleIt wont necessarily force a recession, but it is recessionary.
