There’s a common saying on Wall Street that’s often repeated during periods of high inflation and rising interest rates. It goes something like this: The Federal Reserve will raise rates—until something breaks.
Last month, that something was Silicon Valley Bank (SVB). The rapid collapse of tech startups’ favorite lender, along with fellow midsize 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 JPMorgan Chase CEO Jamie Dimon, who is often seen as the voice of the financial industry, believes the fallout from the crisis is likely over—even if the Fed doesn’t cut rates. Could there be more bank failures? “I don’t know,” Dimon told CNN Thursday. “But if there are, honestly, they’ll be resolved. I think we’re 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 bank’s 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. “That’s 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.
Dimon’s comments echo those of famed short-seller Jim Chanos, who told Insider last week: “This was not a systemic event…It 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 conditions—meaning fewer loans for businesses and consumers—and 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 risks—including war, inflation, and rising interest rates—which 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 CNN’s Poppy Harlow that “it’s not definitive. It’s just like another weight on the scale…It won’t necessarily force a recession, but it is recessionary.”