Jamie Dimon Inadvertently Makes the Case for Derivatives Reform
Forcing most over-the-counter derivatives contracts to be centrally cleared can do a lot to ensure the stability of the financial system. But it will cause very real financial losses to banks, asdetailed here:
Revenue lost by dealers could be significant. Research and advisory firm TABB Group estimates the top 20 dealers generate around $40 billion annually from privately-traded derivatives, excluding credit default swaps.
Jamie Dimon, chief executive of JPMorgan Chase & Co , told bank analysts earlier this month that forcing dealers to trade derivatives on exchanges could cost his firm up to a couple of billion dollars in revenue annually.
JP Morgan’s total revenue was a bit over $115 billion last year, so it’s not like Dimon’s kids will be going hungry when this is done. You’ll note that what’s missing from Dimon’s argument is any kind of compelling reason we should care about this. Some proposed new regulation that would transform his large hyper-profitable bank into a money-losing institution would really be worth worrying about. But what he’s saying is that this measure to enhance the stability of the system will take a firm with $11.73 billion in 2009 profits and turn it into a firm whose profits might be as low as $9 billion.