Neel Kashkari, the outspoken president of the Federal Reserve Bank of Minneapolis, just picked a fight with the nation’s most influential banker.

In a blog post published on Medium Thursday, Kashkari took aim at JPMorgan Chase CEO Jamie Dimon, calling sections of his annual shareholder letter “demonstrably false.”

In his letter, published Tuesday, Dimon argued that the problem of “too big to fail” has been solved by a slew of post-crisis regulatory changes, including the creation of “bail-inable” debt. Taxpayers will no longer be on the hook if a big bank fails, he wrote.

Not so, according to Kashkari.

“Too big to fail is alive and well,” Kashkari wrote in his blog post, which was given the cheeky title “Jamie Dimon’s Shareholder (Advocacy) Letter.”

Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis.
Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis. Bloomberg News

For the past year, Kashkari has been arguing forcefully that banks simply don’t hold enough equity to absorb losses during a crisis.

Under a rule adopted by the Federal Reserve last year, big banks are required to issue a certain amount of unsecured debt that could be converted into equity during an emergency.

Such a move could recapitalize a failing bank. It would turn debtholders into equity holders in a successor institution.

“It sounds like an ideal solution,” Kashkari wrote. “The problem is that it almost never actually works in real life.”

A key lesson from the crisis is that that “nothing beats” equity for absorbing losses, Kashkari argued. Debt holders have repeatedly been the beneficiary of bailouts — both in the U.S. and around the world. Plus, governments may not want to impose possible losses on creditors during a downturn, for fear that they will try to pull their funding, he wrote

Additionally, Kashkari took issue with Dimon’s argument that banks have “too much capital.”

In his letter, Dimon noted that the projected losses for the top 33 banks, under the Fed’s annual stress test, add up to less than 10% of their combined capital.

“This definitively proves that there is excess capital in the system,” Dimon wrote.

Kashkari disagreed.

Stress tests are just hypothetical scenarios — and there’s no way for regulators or bankers to project what kind of losses banks will incur during the next crisis, according to the regional Fed president.

Kashkari also noted that that loan growth at banks has exceeded gross domestic product in recent years. This weakens the case that higher capital requirements are in any way holding the industry back, he said.

“If JPMorgan had demand for additional loans from creditworthy borrowers, why did it turn those customers away and instead choose to buy back its stock?” Kashkari wrote, noting that the New York megabank has bought back $26 billion over the past five years.

A spokesman for JPMorgan Chase did not immediately respond to a request for comment.

Still, at one point in his blog post, Kashkari referred to Dimon’s letter in language that almost bordered on praise.

“At 46 pages, Mr. Dimon’s letter includes a lot of interesting commentary,” Kashkari wrote.

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