By
Bhushan Akolkar
April 17th, 2024
Dimon disagreed with the Federal Reserve annual program.
Jamie Dimon, the CEO of investment banking company JPMorgan (NYSE: JPM), has criticized the annual stress test conducted by the Federal Reserve. Every year, the Federal Reserve organizes stress to evaluate the bank’s financial resilience. This is done by estimating the bank’s revenue, losses, expenses, and resulting capital levels. The purpose is to determine if these financial institutions are capable of absorbing losses and still delivering to clients during bad market conditions. The yearly exercise started after the financial crisis in 2008, which significantly impacted the world’s economy.
In the latest result of the Federal Reserve stress test, the central bank said:
“The Federal Reserve conducts the stress test annually, using a minimum of two different scenarios to test a bank’s capital adequacy during times of stress, and publicly discloses bank-level results. Banks must also conduct and publicly disclose the results of their company-run stress tests based on their risk profiles, as defined by the Board’s stress testing rules.”
JPMorgan CEO Disagrees with Federal Reserve Stress Test Result
In response to Morgan Stanley analyst Betsy Graseck who asked his opinion on the stress test, Dimon disagreed with the Federal Reserve annual program. And he noted that JPMorgan disagrees with the stress test. He referred to the initiative as inconsistent, transparent, and “too volatile.” The CEO added that “it’s basically capricious, arbitrary.”
Following the results of the last Federal Reserve test, JPMorgan has been trying to amass more capital to comply with the outcome of the exercise. The investment banking company had to freeze its dividends due to the constantly increasing capital requirements within the last test. JPMorgan maintained its quarterly dividend frozen at $1 per share. Also, Citigroup (NYSE: C) said its quarterly payout will remain at 51 cents. Dimon said that the company would continue to use its capital to invest in and develop its market-leading business. The New-York based bank also plans to retain capital for future regulatory requirements.
According to the test, JPMorgan will supposedly lose about $44 billion amid high unemployment and market crashes. However, Dimon is confident in the bank’s excellent performance despite a downturn. JPMorgan CFO Jeremy Barnum said the Fed does not release the stress capital buffer to banks. In his opinion, this makes it “really very hard at any given moment to understand what’s actually driving it.”
He added:
“We feel very good about building [capital] quickly enough to meet the higher requirements. But they’re pretty big changes that come into effect fairly quickly for banks, and I think that’s probably not healthy.”
At premarket trading, JPM stock is trading up 0.34% to $108.37. Meanwhile, the company has lost almost 29% in the last twelve months. It also dropped further by 31.80% in its year-to-date record.