Jamie Dimon: Too big to Fail Must Be Excised from Our Vocabulary

By Nov 13, 2009, 10:59 AM Author's Blog  

JP Morgan Chase (JPM) CEO Jamie Dimon, the head of the country’s second-biggest bank, considered by many to be “too big to fail,” said Friday that the term must be excised from our vocabulary.

In a WaPo opinion piece, Dimon said that banks like his should be allowed to fail and that the government shouldn’t provide artificial life support if they don’t perform.

“As we have seen clearly over the last several years, financial institutions, including those not considered “too big,” can pose serious risks for our markets because of their interconnectivity,” Dimon wrote.

That doesn’t mean, however, Dimon favors putting limits on banks getting too big. He points out that putting a cap on the size of an institution and preventing them from becoming too big, will not prevent risk.

“Artificially limiting the size of an institution, regardless of the business implications, does not make sense,” Dimon wrote. “The goal should be a regulatory system that allows financial institutions to meet the needs of individual and institutional customers while ensuring that even the biggest bank can be allowed to fail in a way that does not put taxpayers or the broader economy at risk.”

After arguing that scale isn’t inherently bad for a bank, he cautioned Congress against handcuffing well-run businesses and advised it to focus its attention on those institutions that aren’t managing risk well, regardless of their size.

“It is vital that policymakers and those with a stake in our financial system work together to overhaul our regulatory structure thoughtfully and well”, Dimon wrote.” While changes may seem arcane and technical, they are critical to the future of the whole economy. It is clear that we must modernize our financial regulatory system. The stakes are simply too high and the consequences too far-reaching to do this hastily”.

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