A 'Marshall Plan for America': Takeaways from Jamie Dimon's shareholder letter

Dimon’s letter to shareholders emphasized the need for additional regulatory relief for banks, including globally systemically important banks.

“We also need to get the recalibration of other regulatory requirements right, particularly around operational risk capital, the Fed’s Comprehensive Capital Analysis and Review (CCAR) stress test and the additional allocation of capital to global systemically important banks (GSIB),” Dimon’s letter said. “If we don’t do so, certain products and services will continue to be pushed outside the banking system (where they are, fundamentally, not regulated), distorting markets and raising the cost of credit for clients.”

Dimon said that JPMorgan currently holds $400 billion of operational risk-weighted assets, which means it now holds more than $40 billion of equity for assets that don’t exist.

“Tying up capital in perpetuity — looking for shadows on the wall — is probably not the best idea for fostering growth in America,” Dimon said.

Dimon also said there is “arbitrariness” to the CCAR stress testing regime, saying that the single test and the results show that most banks at the worst part of the stress cycle can barely cover their required capital, which he said is “fundamentally inaccurate.”

Dimon criticized G-SIB capital requirements, saying that most of the factors used in the requirements are not risk-adjusted.

“Their methodology irrationally multiplies certain factors over and over, and many of the facts are simply unjustified on any basis,” he said.

Under the current system, he said, banks will actually be in worse position to pull the country out of a recession than they were a decade ago.

“New regulations mean that banks will have to maintain more liquidity going into a downturn, be prepared for the impacts of even tougher stress tests and hold more capital because capital requirements are even more procyclical than in the past," he wrote.

"Effectively, some new rules will force capital to the sidelines just when it might be needed most by clients and the markets.”

A surplus of unnecessary regulations and mortgage rules left over from the financial crisis are hampering the healthy growth of the U.S. economy, and have caused JPMorgan Chase to re-evaluate its role in originating, servicing and holding mortgages, Dimon said.

“The odds are increasing that we will need to materially change our mortgage strategy going forward,” he said.

Extensive mortgage reform hasn’t been achieved yet because of the high concentration of regulators involved in crafting new rules — along with repeated political intervention — which is why banks have been gradually moving away from the mortgage business as it becomes more unprofitable, according to Dimon.

Dimon’s comments echo those of other housing executives and some congressional Republicans, who have argued that regulatory burdens have strained the supply of housing and driven up costs, exacerbating what many consider to be an affordable housing crisis.

With more than 3,000 federal and state origination and servicing requirements, obtaining a mortgage has become more difficult, especially for borrowers who are younger, self-employed or who have had prior defaults on loans, Dimon claimed.

“Reducing onerous and unnecessary origination and servicing requirements … and opening up the securitization markets for safe loans would dramatically improve the cost and availability of mortgages to consumers,” he said.

This could lead up to a 0.2% increase in homeownership and economic growth per year, according to JPMorgan Chase economists.

Dimon’s letter includes a roundup of broader economic problems facing the country — along with some potential solutions.

“Our shortcomings in these areas clearly have impeded the prosperity of the U.S. economy and have failed many of our fellow citizens over the past two decades or so,” he writes.

The problems he highlights are expansive, including an “ineffective and out-of-touch” educational system, “soaring” costs for health care and crumbling infrastructure. He also cites “irrational” student lending and debt, “frustrating” immigration policies, declining labor force participation, “excessive” regulation and poor government budgeting and planning, among other challenges for the country.

“If I were king for a day, I would always have a competitive business tax system and invest in infrastructure and education as a sine qua non to maximize the long-term health and growth of our economy and our citizens,” Dimon writes. “I would not trade these issues off — I would figure out a way to properly pay for them.”

Broadly, he calls for fundamental reforms to the political system, asking Republicans and Democrats alike to consider the other’s perspective and agree on a set of effective, common-sense solutions to shoring uo the safety net for the elderly, sick and poor, improving education and repairing infrastructure.

He called it a "Marshall Plan for America," and to pay for it all, Dimon suggested raising taxes on wealthy individuals — so long as the money pays for programs that work.

"If we can demonstrate we are spending money wisely, we should spend more," he wrote.

Under the Marshall Plan, known formally as the European Recovery Program and spearheaded by Secretary of State George C. Marshall, the United States spent about $13 billion to help Western European nations recover from the devastation of World War II.

Dimon also encourages various groups, including government agencies and corporations, to “set aside narrow self-interest” when backing legislative and regulatory proposals.

“While leaders obviously fight for their institutions, we all need to be able to advocate for policies that are good for our organizations without being bad for our country,” he notes.

But he offers specifics as well. On education, Dimon lends support for mandatory preschool and further calls for high schools and community colleges to “work with local businesses to create specific skills training programs, internships and apprenticeships that prepare graduating students to be job-ready — whether they go on to earn a credential, to work or to attend college.”

He lists a series of potential fixes for the bloated health care system, such as more transparent plan pricing, affordable end-of-life care and improved corporate wellness programs, with a focus on obesity and smoking. He suggests that small-business licensing should be simplified and urges governments at all levels to conduct transparent, multiyear budgeting and planning exercises.

“When the government says it is going to spend money, it should tell the American people what the expected outcome is and report on it,” Dimon says. “It should account for loans the same way the private sector does, and it should be required to do cost-benefit analysis.”