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"It is about saving the financial economy, not saving a firm," says Jim Wigand, the 28-year FDIC veteran tasked by Congress with ending Too-Big-to-Fail bailouts.
May 16 -
If the credit derivative positions are hedges, why doesn't JPMorgan account for them as such under GAAP?
May 17
LOUISVILLE, Ky. — Federal Reserve Bank of St. Louis President James Bullard reiterated Thursday banks deemed "too big to fail" should be split up and cited JPMorgan Chase & Co. (JPM) specifically.
"We do not need these companies to be as big as they are," Bullard said. His remarks come a week after JPMorgan disclosed a $2 billion trading loss.
"We should say we want smaller institutions so that they can safely fail if they need to fail," he said, although he also called JPMorgan "a good player."
Bullard made his general comments regarding "too big to fail" banks at a Rotary Club meeting here. He was responding to a question from the audience regarding JPMorgan's disclosure that it lost $2 billion on hedges that soured.
"Even a good player like J.P Morgan Chase can lose a lot of money," Bullard said, adding that the issue points to the benefit of requiring big institutions to keep plenty of capital on hand.
Bullard then took the opportunity to note he supports his colleague Richard Fisher, president of the Dallas Fed, in his call to break up big banks. Bullard said in response to questions from reporters afterward that JPMorgan should be among them.
JPMorgan is "one of the biggest banks," Bullard said, noting he has called for the largest banks to be split apart in the past but "not in a while."
He declined to comment extensively on the so-called Volcker rule, which would restrict speculative investments by banks, saying the specific regulations within it are still being written. "But it has turned out to be a complicated endeavor," said Bullard, who was a supporter of the rule when it was initially enacted.
Meanwhile, Bullard also echoed Thursday many of the comments he made a day earlier at another local event here, when he said the U.S. remains in economic recovery but warned that political leaders of both parties should do more to address the nation's fiscal problems.
"I think we are in pretty good shape as a nation" in terms of the economy, Bullard said. "We are on a recovery track."
Still, he said "Congress has decided to take the year off" for re-election campaigns and isn't adequately dealing with the huge federal debt and the looming fiscal crisis of large spending cuts and tax increases scheduled to kick in early next year.
"You're playing with fire here in the U.S. to let that continue," Bullard said at Thursday's event. "Our debt and deficit numbers are as bad as some of the worst offenders in Europe."
As for Europe, he said he thinks the U.S. economy can continue "to do well" even if the Continent falls into recession--provided it doesn't undergo a full-fledged economic meltdown.
A normal recession in Europe "would be somewhat of a drag" on the U.S. economy but not enough of one to douse the recovery, he said.
Bullard said the U.S. housing market appears to have bottomed out and should "gradually improve going forward." He described the labor market as "not good" but slowly improving.
He told reporters after Thursday's event that while some recent economic data "has been mixed," it hasn't been enough to change his general view that the economy is continuing to grow.
The mixed data "hasn't been significant enough to make a material difference to the forecast at this point," Bullard said.
