Dimon: Treasury’s GSE plan ‘going in the right direction’

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The Treasury Department’s plan released last week to unhook mortgage giants Fannie Mae and Freddie Mac from their conservatorships has the support of JPMorgan Chase Chairman and CEO Jamie Dimon.

“It was very good what they said, which was basically these things should be public, they should pay the government, the taxpayer should never pay,” Dimon said at the Barclays Financial Services Conference in New York Tuesday.

Dimon commended parts of the plan that refine Fannie and Freddie’s mandates. He was also encouraged by plans to allow the government-sponsored enterprises to sell off credit risk on the loans and bonds they back to “have an active securitization market.”

“If you did some of these things and created a more healthy economy, that’s healthier for the financial institutions too,” Dimon said. “I think they’re kind of going in the right direction for the GSEs, and there are a lot of details to come.”

Fannie and Freddie have labored under government control for a decade, and there is skepticism about how far the Treasury Department can go in reforming them without legislation.

Dimon also said that the $2.7 trillion-asset banking giant is preparing for the possibility of the Federal Reserve eventually reducing its main borrowing rate to zero, even though he believes it is unlikely.

“I don’t think we will have zero rates in the United States, but we are thinking about how to be prepared for it just as a normal course of risk management,” Dimon said. “It seems very hard to me to charge consumers below zero.”

He said one adjustment the bank could make is to charge account fees.

The Fed cut its main borrowing rate for the first time in a decade in July to between 2% and 2.25%. Fed officials are debating how to proceed from there as President Donald Trump has been putting pressure on them to cut further in order to stimulate the economy.

JPMorgan’s full-year net interest income is expected to come down by as much as $500 million from previous guidance because of the lower-rate environment, Dimon said.

Dimon expressed some urgency to end the trade war between the Trump administration and China.

The bank has been building its business of taking Chinese companies into other countries and multinational corporations into China. This has been complicated by tariff hikes exchanged between the U.S. and China, as well as the protests in Hong Kong, Dimon said.

“Taking the trade war off the table is a good thing, to have mature negotiators to try and get it done,” he said.

Dimon said recent changes made to restrictions on bank’s proprietary trading, known as the Volcker rule, put in place as part of the 2010 Dodd-Frank Act would lead to more liquidity in trading markets.

Regulators approved final amendments in August that provide more exemptions from the rule meant to curb banks’ risky bets, touching off some debate over whether they went to far. JPMorgan is set to save money from the changes mostly around reporting, Dimon said.

“These are now calibrations about a slightly better way to do it,” he said. “We’re not going to be taking a lot more risk. But it will lead to a little bit more liquidity, because at the margin you will have more people who are a little more able to trade.”

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