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.
Terri Henderson, 6, center, whose mother is El Salvador, attends a rally with members of Congress at Union Station's Columbus Circle to announce the Restore Opportunity, Strengthen, and Improve the Economy (ROSIE) Act on July 29, 2014. The legislation provides incentives for government contractors to pay a living wage and other benefits that would help low-income workers.