In “The Bankers’ New Clothes: What’s Wrong with Banking and What to Do About It,” authors Anat Admati and Martin Hellwig criticize bankers such as Jamie Dimon, above, CEO of J.P. Morgan Chase & Co.
Returning to J.P. Morgan, Admati and Hellwig’s 20 percent to 30 percent proposal would require the company to hold about $450 billion to almost $700 billion in equity against its $2.3 trillion in assets, more than two to almost four times the current level of equity.
That may seem excessive for a bank seen as one of the best run in the United States. Yet, when the London Whale surfaced in spring 2012, Dimon first dismissed it as a “tempest in a teapot,” then estimated its losses around $2 billion, and eventually worked his way up to $6 billion. Bankers were “sloppy,” “stupid” and used “bad judgment,” he said.
The gap between a tempest and $6 billion at one of America’s better-run banks may be enough to persuade even the most trusting soul to ask whether these are questions that should not be left to the bankers.
“The public has a much greater interest in the banks’ safety than the banks themselves,” Admati and Hellwig write.
Randolph Walerius is an analyst for the CQ Roll Call Washington Securities Briefing.