JPMorgan Chase & Co. (JPM:US) Chief Executive Officer Jamie Dimon led Wall Street bosses in a closed-door meeting to personally lobby the Federal Reserve about softening proposed reforms that might crimp their profits.
The contingent, which included Bank of America Corp. (BAC:US)’s Brian T. Moynihan, 52, and Goldman Sachs Group Inc. (GS:US)’s Lloyd C. Blankfein, 57, pressed the Fed on rules they said would overstate trading risks and harm financial markets, the central bank said yesterday in a statement. They also discussed what they see as flaws in Fed stress tests designed to gauge the strength of the nation’s largest lenders.
The meeting highlights the magnitude of Wall Street’s campaign to blunt new regulations. While none of the banks is in jeopardy, the setting and surroundings -- reporters huddled outside in the rain as TV transmitter trucks stood by -- evoked the drama of the September 2008 weekend meetings at the New York Fed that preceded Lehman Brothers Holdings Inc.’s bankruptcy, and the 1998 rescue of Long-Term Capital Management LP.
There was a “give and take,” Dimon told reporters as he left the meeting at the Federal Reserve Bank of New York. He wouldn’t elaborate as he got into a waiting black Chevrolet Tahoe. The Fed’s representative, Governor Daniel Tarullo, told the executives he couldn’t give them feedback on rulemaking proposals, according to the central bank’s statement.
“When they are all there, it does drive home the concerns,” said Douglas Landy, a partner at Allen & Overy LLP who previously worked at the New York Fed.
According to the Fed’s statement, the bankers “presented their views” about topics such as the board’s rules to limit counterparty risk, the stress tests and proposed rules from the Fed to restrict proprietary trading, known as the Volcker rule.
“Their comments would be considered together with all other comments and feedback received from other interested parties,” the Fed said.
Dimon, 56, sought the meeting after the Fed completed its stress tests of the largest banks in March, according to a person briefed on the matter who asked not to be identified because the discussions were private. Tarullo, 59, didn’t get into debates with the CEOs, who also included Morgan Stanley (MS:US)’s James Gorman, 53, U.S. Bancorp’s Richard Davis, 54, and State Street Corp. (STT:US)’s Joseph “Jay” Hooley, 55, according to the Fed.
In a public speech earlier in the day in New York, Tarullo said it was “sobering” to think how much new regulation is yet to be completed.
More to Do
“My concern has been that the momentum generated during the crisis will wane or be redirected to other issues before reforms have been completed,” Tarullo told the Council on Foreign Relations. “So much remains to be done.”
Firms including New York-based JPMorgan, ranked first (JPM:US) by assets in the U.S., and Goldman Sachs have objected to the Fed’s proposed 10 percent limit on counterparty risk for the biggest firms, saying it would hamper credit and cut economic growth. The cap is stricter than a 25 percent limit in the Dodd-Frank financial-overhaul law.
The proposal to limit credit exposure is designed to contain the damage if a large company, foreign government or bank should fail and threaten to take down other institutions with it. A firm deemed systemically important couldn’t have more than 10 percent of its counterparty risk tied to one entity.
Bankers told the Fed in comment letters this week that the Fed was overstating risks, and JPMorgan said the rule will hurt its ability to execute some risk-management or hedging transactions.
“Each of these rules are franchise-make-or-break decisions,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm. “They really are redefining the industry.”
Concentration of risk in derivatives was blamed in part for the banking system’s near-collapse in 2008 by the Financial Crisis Inquiry Commission’s January 2011 report.
JPMorgan has said the company’s chief investment office, with a $360 billion portfolio, is responsible for managing some of the firm’s risks (JPM:US). The unit has made bets so large that the bank probably can’t unwind them without losing money or roiling financial markets, five former executives said last month.
On his way into the meeting, Dimon told reporters that “everything” was a potential topic.
“It’s great that people get together and collaborate, talk about the facts and the analysis, all in the interest of having a great financial system,” Dimon said. “The better we do here, the better it will be for the U.S. economy.”
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