JPMorgan CEO Jamie Dimon Warns the Silicon Valley Bank Crisis Isn’t Over

The JPMorgan CEO said the causes of SVB's downfall were hiding in plain sight and that banking regulators need to be more thoughtful and forward-looking.

A close-up of Jamie Dimon
JPMorgan Chase CEO Jamie Dimon published his letter to shareholders on April 4. Drew Angerer/Getty Images

Three weeks after the swift collapse of Silicon Valley Bank, as bank stock selloff slows and depositors are made whole, it increasingly feels as though the SVB-induced banking crisis is over. The CEO of the world’s largest bank disagrees.

“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” Jamie Dimon, the longtime CEO of JPMorgan Chase (JPM), wrote today (April 4) in his annual letter to shareholders, which is a must-read for many investors and business executives.

The downfall of SVB is the largest banking failure in the U.S. since 2008, and its domino-like effect on regional banks including New York’s Signature Bank in New York and San Francisco’s First Republic is producing flashbacks to the last big financial crisis. While economists generally agree the causes of SVB’s failure are very different from those of Lehman Brothers and Bear Stearns in 2008, the damages can still be felt across the U.S. banking system, Dimon said.

“This current banking crisis involves far fewer financial players and fewer issues that need to be resolved. [But] these failures were not good for banks of any size,” Dimon wrote. “Any crisis that damages Americans’ trust in their banks damages all banks—a fact that was known even before this crisis.”

The two main causes of SVB’s collapse were its heavy losses on bond investment and a high proportion of uninsured deposits, which eventually triggered a bank run in early March. Dimon said these risks were “hiding in plain sight”—because bonds are a common asset held by banks—and regulators need to do a better job of predicting failures like SVB’s and restoring depositor confidence.

Dimon recommended more thoughtful risk assessment

In the U.S., banks above a certain size are subject to an annual stress test analysis conducted by the Federal Reserve to ensure they have enough capital to withstand an economic crisis such as a recession or market crash. The current stress test framework doesn’t give enough consideration to the risk of high interest rates, Dimon noted, which were the largest contributor to SVB’s investment losses. Also, SVB never went under the Fed’s stress tests because it didn’t meet the capital requirement—assets of $250 billion—for these tests.

“Regulation, particularly stress testing, should be more thoughtful and forward looking,” Dimon wrote. “A less academic, more collaborative reflection of possible risks that a bank faces would better inform institutions and their regulators about the full landscape of potential risks.”

The CEO added that “in almost all bank failures, uninsured deposits never resulted in lost money—but the very fear of loss can cause a run on any bank having characteristics similar to a bank that has failed.”

That’s exactly what happened with Signature and First Republic. Like SVB, Signature was taken over by the government before it ran out of money. First Republic was saved by a group of larger banks, including JPMorgan, which collectively made a $30 billion deposit into the bank to make sure it could meet withdrawal needs.

“While this crisis will pass, lessons will be learned, which will result in some changes to the regulatory system,” Dimon wrote. “However, it is extremely important that we avoid knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended.”

JPMorgan CEO Jamie Dimon Warns the Silicon Valley Bank Crisis Isn’t Over