The boss of JP Morgan has warned of risks building up in financial institutions that are not banks and so out of the reach of many regulations.
Jamie Dimon said in his annual letter to the bank’s shareholders that the growth of “shadow banks” probably had not yet reached a level of “systemic risk”, but he added that “this trend is accelerating and needs to be assiduously monitored”.
The letter predicted two years of economic growth in the United States and a possible “Goldilocks moment” of fast growth and sustainable rises in inflation and interest rates.
However, it also warned of increasingly tough competition for banks from lenders that are not banks and from technology companies. “We should remember that the quantum of risk may not have changed — it just got moved to a less-regulated environment,” Dimon, 65, said.
His comments come as the financial world has been rocked by the implosion of Archegos Capital Management, a family office that appears to have the risk levels of a hedge fund. Credit Suisse has said that it will suffer a $4.7 billion loss on its Archegos positions.
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Greensill Capital, a supply chain finance business that went into administration last month, also operated largely outside the sphere of financial regulation. Grant Thornton, its administrator, is working through its positions. Its situation is complicated given the multiple parties involved, including its links to Sanjeev Gupta’s GFG Alliance metals business, the government, which does not want thousands of steel jobs to be lost, and Credit Suisse, which is seeking to recover client funds.
It has emerged that Lex Greensill, the firm’s founder, told employees that the business had plenty of liquidity and was having positive talks with insurers weeks before his firm collapsed. He referred to the “incredible strength” of funds from Credit Suisse and GAM, the Swiss asset manager, in an internal video posted on February 15 and first reported by the Financial Times.
