It's going to get worse before it gets better. That's according to JP Morgan Chase CEO Jamie Diamond, but he's not talking about the economy. Instead, Diamond is warning of overregulation in the banking industry in the wake of several regional bank failures. It's one of the topics Diamond covered when he joined Bloomberg's Francine Laqua and Paris for a wide ranging discussion. They touched on everything from regional banks to China and the debt ceiling. Let's go to that conversation right now.
Debt ceiling or banking turmoil? What are you most worried about?
You'd be here. Well, I think the debt sh thing is potentially catastrophe. Yeah, so that's a whole different issue. Hopefully won't happen. You know, the banking crisis, I still believe will kind of sort its way through and it's not anything like eight or nine. Only a couple of people off size with all these various things which you knew about. So hopefully you know it's getting near the tail end of that.
But if you're Janet Yellen right now, what would you do differently?
I don't know. I think we need to finish the bank. I think we've been we've had uncertain policy on mergers. This first Arizon deal. I think we have to assume they'll be a little bit more so, you know, whatever the FD I see, the OCC the Federal Reserve, you know, whatever they need to do to uh make it better, they should do. Be thoughtful, be very forward looking. You not be surprised constantly because some of these things have
been known about for quite a while. And so we've handled three SBB signature first Republic and so Yes, but I think it's very important. The regional banks who I've been speaking to like every day for the last week, they're quite strong. You know, they're quite worried because of the run and deposits all that, but the financial results are good. The financial results are gonna be good, Okay next quarter. You know, they're earning money. They've got a
very good clientele, very diversified. Uh uh, and they're they're quite strong.
Jemmy for like a comprehensive solution. So if you're asking Jennet Young to get the job done, what does that look like that solution?
Asking for solution? Why not just be prepared for problem. There's no we don't need a copy of solution.
What do we need right now? Do we regulators to look at short sellers of banks?
Yes, you know, like look, my folks would tell me that that's not the problem the short selling ban. If you actually analyze stocks and short sales, it doesn't seem to that big a deal. I think they may partially be wrong, because, as you know, some people are unscrupulous
and they use other means to go short. I think that if you look at the detail, the SEC has the enforcement capability to look at what people are doing by name in options, derivatives, short sales, and they should go if someone's doing anything wrong, people are in collusion, or people going short and then making a tweet about a bank, they should go after them and vigorously, and they should be punished to the full extental law allows it.
So I think it's possible is taking place. We have no evidence of it, but you know, my experience in life has been don't assume too much.
Do you think that they're looking into it?
I hope so. I don't know.
When you look at some of the position of JP mor Agan, of course you didn't really buy any long dated bonds, and at the time, a lot of people said, look, stop boarding cash. Do you think regulators and investors had pushed some of these banks to take unwarranted risk?
Yes, I do, but let's be clear the people to blame, or the bank CEOs and the bank boards and things like that. Having said that, I think there would be a humility on the part of regulators that the Federal Reserve itself never forecast insurratees going off. Not one Fed governor forecast it. And whether you forecast it or not, you should be stressed testing people for it. Their stress tests always had low rates. We always knew about uninsured deposits.
And there were huge incentives that banks to put securities in health and maturity, lower capital requirements, huge incentives own treasuries, lower capital acquirements, and they counted for liquidity. And I'm hoping all that guests looked at and they should look at and say, oh, okay, we're a little bit part of the problem, as opposed to just pointing fingers.
So this is what not a regulation problem, it's a supervision problem.
Yeah, it's a little bit of both. They become very related. I mean, supervisors, look at are you doing the right thing by regulations? And so, and like even the stress tests. I've always thought that you know, when you have one stress test and you have a company completely focused on that for three months, you know, does it all people have a false sense of security that all these other things aren't going to happen. And all these other things in history always happen, and so, you know, I think
it was a little bit of a mistake. Have one stress test. I'm not asking to do many at this level of detail, but you know, our stress test is two hundred thousand pages long. Do you think that last one hundred thousand pages added value? And my view is it did not.
Do you think? But things will change because of this? Is this like a catalyst?
We always gonna get worse for banks? I think that people they're just more regulations and more rules and more requirements. I hope they do it very thoughtfully, because you know, if you really love the community banks, the regional banks, we're the biggest banks of those folks. But you know,
if you overdo certain rules, requirements, regulations. You know, some of these community banks tell me to have more compl cions people, the loan officers, you know, and so at one point you make it harder for them to new business. There are already hundreds of rules in place, and in a lot of ways, it's to mix the rules. If you're gonna change the liquidity and maybe not capital. If you can change capital and maybe not liquidity. If you're gonna add t LAC, then maybe you should do something
with deposit insurance. They should. They should sit down and have a very thoughtful conversation about what those things are and what we want the outcome to be. If you look at the present outcome, a lot of things are leaving banks and they should you know, I'm not and if that's what they want, so be it. But that should be done with the forethought. That should not be done because you just putting rules and regulations in place
and you don't know the consequences. The mortgage business, for example, is you know, largely not largely eighty percent out of banks today, and just be careful about what you what you wish for.
So you bought First Republic, you've had I imagine how a good look at what's inside it? What did you find out?
Yeah, no, we had to go look before we bought it.
Okay, that's reassuring.
But anything that you sign up eight hundred people working around the clock for a long time to look at something like that, and in reality, look, they did something really well. Like if you touch their customers, I've getten calls and emails and great great culture, great customers and things like that. Their credit is kind of pristine. You know, that's good. So of course we marked all the market and roll in very good shape, and we've had all
the trade exposure together. We've got thousands of people now going out learning about what their best is. We want the best of both, about the kind of coming that comes in our highway, our way or the highway, and so there's no surprise there. You know, it's it had to make sense for shareholders. But you know this notion, this notion that it was unbelievad in it was a nice thing for shows. That's my I have to do that.
But we also really did it to assimilate the bank in a way that's very safe for the system and didn't cost unassured deposits, didn't cost the ft, it costs the FDA C as little as possible. But I also want to point out I'd be fine if they want to change the rules a little bit to make it easier for a regional bank to buy a big bank. And the other thing about big banks, which again is now I know, I know. But the thing about big banks,
we need healthy big banks. We have the best banking system in the world, you know, and you want that very big. But but not banks are becoming smaller or smaller as a part of the global system. So when they look at banks, they say, oh, it's big. But when you look at the banking system, to the system mortgage of the left, a lot of private credits left, certain trading functions of the left, a lot of things are
going to leave. You have Apple, you have the neo banks, you have you better be a little more thoughtful about when you say what you mean banking per se and so.
But the US, the Americans, should not fear too much finance consolidation in your hands.
No, because you know, most of our size accrues to our clients. So if you look at you know we do most large small banks can't do. We do like banking large corporations of fifty countries around the world to move ten trillion dollars a day. They you know, it's hard. So these are these are big, complex things. We're not big and complex. We want to be. We're big and complex because the pee we serve at bigger compon. We
bank countries, the World Bank. You know, we do a lot of things, and yes we also bank consumers in the United States. So, but I want the banks to thrive. I mean, like I said, we want to do everything kind of help them. We didn't want this to happen. We didn't cause to happen. The second happened, we knew it was bad for old banks.
Are you too big to fail?
I don't know what that word means anymore. I mean, we're not going to fail, and I don't know what that means. But we certainly didn't mean it to be an advantage. Like so, you know, we've asked all our people when this crisis happened. I don't want anyone so listing any client or any bank or from any of the any bank's regional bank or community bank, et cetera.
So is there anything else that you that you'd be buying. I mean some of the smaller banks fault, you know, fun that's it.
No, I mean, we're gonna have a lot of blowback and having bought this one, but it was the right thing. To do, you know, but we'll get the blowback. But again, my job is this people at this thing. They always look at like the financial deal. Forget the financial deal. Eight hundred people working around the clock. Ten thousand people deployed now to consolidate systems, risk fraud, credit payments, branches, real estate vendors, technology. It's a lot of work, you know,
and it just tracks us from those other things. And so you know, like I said, we did it. It was margely benefits for shareholders, it was good for the system. But and you know, we got to now we have to be prepared for the other side of that mountain.
How worried are you about the dead ceiling? So Donald Trump, yesterre in a town halicy and na did not seem too worried and too actually told Republicans to stick to their guns.
It's one more thing he does know very much about. It may be put in two categories. One is actual default. That is potentially catastrophic. And you can go through a million ways, but everyone, anyone's anyone knows that's potentially catastrophic. And I don't think it's going to happen because it gets catastrophic and the closer you get to it, you will have panic. And so the closer you get you have markets get volatile. Maybe there's Doc mar go down
the treasury. Markets will have for their own problems. It's amazing. You already have certain T bills it's trading three percent and right next to them five percent. This is not good. And people just remember the American financial system is the foundation to the to the global economic system. And so and the closer we get more panic, we might get downgraded. The last time were downgrade, we had like sixty five or seventy percent debt to GDP. Now it's one hundred
and five. Now our defenits are two or three times that that we had back then. So you know, we better be very careful. And I wish we didn't get there at all. I'm respectful of both sides who you know, one side wants to use it the makeup for we've got jammed down their throats, you know. And I would love to get rid of the debt ceiling thing, but please negotiate a deal.
Do you think that it'll be at the end of the day of the markets that will spur a deal that we have to get to the point where there's where there's panic.
It's a really bad idea because panic becomes something that is not good and it could affect other markets around the world. But yes, at the end of the day, if it gets to that panic point, people have to react, and we've seen that before. Another thing about markets is always remember panic is the one thing that scares people
like they take irrational decisions. I remember even in eight people are selling certain securities at twenty percent of what they would be worth if we had a great depression. But they were like, I want out, I want cash. I'm not betting my my family's money on this and my company's money. People will panic, and again we got to be very careful about getting closer situation that causes that.
Do you get a call from Jennet yelling about this.
I'm not going to talk about personal calls I'm getting We've all spoken about that's young, I mean everyone, that's that's everyone's no for big banks.
Are you ready? Actually, how do you prepare for possible?
We have a group of people who are very smart. We're looking at again, it's very unfortunate, it's time consuming. Hopefully it won't happen, but it affects contracts, collateral, clearing houses clients and affects clients differently around the world. You have to then anticipate what people are going to do, which is very different than the legality of it. And you know, and the closer we get, the more those
kind of that war room will start. Now it's taking place once a week, but my guess is sometimes called May twenty. First it'll be every day, then it'll be three times a day, and then there'll be much more conversations with clients. But what they need to do to help get them through it and things like that. It's very unfortunate. It should never happen this way.
Fortress Diamond is always about the balance sheet. Should there be a special commission looking at debts in the US that you should run?
Oh god no, why not? I don't want to.
On China, they went after tech, they're looking now at finance. What kind of message does it tell companies that want to do business there?
Well, I think we say they're looking at finance. It's been very limited. They've been very much more careful about touching the financial system. Who we're outsiders. But look, this is a serious subject and anything that relates to national security. I'm a patriot first, and I'm going to salute my government, So put that, but put that aside. What the government should do and it wants to do, and is now say they are going to do, is have conversations. They're
gonna be tough, but they should be thoughtful. Certain things are really national security, certain things are not, you know, And we shouldn't confuse the two American shine of a lot of common interest climate, nuclear pliferation, anti terrorism, and global stability, you know, And we have differences. You know. We're capitalists, they're not, you know, And it's okay, we could sort that out. But we need to keep the Western alliances together, not just around war and Ukraine, but
around strategic economic reladerships, including trade, including trade. We can't take trade of the table every time we talk to you know, Europe or Asian stuff like that. So I would go back into TPP. I would surround the world. I'd want to keep the world safe for democracy, and i'd want to have open markets, particularly Europe. And I mean I obvious here last time is when we passed Iraq.
A lot of great things that act, but there are things I don't like, like too much social engineering inside of it, but also a pistol off all of our allies putting on the China side.
So they if they start doing more noise on finance, does that hurt Chinese growth?
Like probably, I think you've already seen it's not trade, but you've seen investment going both ways coming down, and that's okay. In the short run and the long run. We should say what And the government's got to decide. This is not gonna be business companies decide, nor should they. So when Congress criticizes business sometimes there may be truth to that. They have to decide what is okay, what's
not okay? What do they want? What's security? And that's around trade, that's around investment, and that's around sharing.
IP I give you a million pounds or maybe you take it, you know, your own million pounds. Where'd you invest in?
Organ I wouldn't. I wouldn't buy sovereign dead anywhere. Why I think there's too much The amount of fiscal stimus took place and still surging through the system, the amount of qi these were extraordinary numbers, and not just in the US, but in Europe and in other parts of the world. When I say extraordinary, I mean extraordinary, and therefore I think there's a chance you have more inflation
than people think. So while the Fed control short ray, they don't completely control longer rates, and then you could see longer rates ticking up because of higher inflation, and even if there's a mild recession, they continue to tick up. You know a lot of us experience that in the seventies and eighties, and I would be a little worried about that. So rates are kind of low, spreads are still kind of low.
Okay, so you're not putting them in suffer, and where are you putting that million?
I'm central banks.
For stability. If you look at fragmentation, I mean, the world seems a little bit odd like equities are doing one thing, but we keep on being told there's a recession. Why is there this massive adusyncrasy.
That's the contradiction. There's still consumers in America job unemployed three point five percent. Home prizes have gone up for ten to fifteen years. Stock prize has gone in for ten to fifteen years. They have a trillion dollars more in their checking accounts. They're spending that money. You see in travel, you see in restaurants, you see it, and you've been around here and you see in hotels, you see it. That's all good, But the excess money's being
spent down. So the bite of that is going to happen this year early next year. And the bite of QT hasn't happened yet. So if you have higher inflation, so I think it's a reasonable thing to say those things are coming to fruition. Maybe sometime in the end of the year. We don't know the effect of that, you know, if there's I mean I would take a
mild recession happily. Right now. I am far more concerned about geopolitics Ukraine, trade, you know, Russia, our relations with China, etc. And I always have to mind all of our public America has a seventy five thousand per person GDP, China's is fifteen. We have all the food warn and energy we want. They import ten million bounds of oil a day. I mean it's not They're not a ten foot giant, and that's a four foot pigmy. We have to manage ourselves.
Bat I think we can grow more and more thought forward.
So you know, a lot of people say it's commercial real estate. I mean, we talk about nothing else. Everybody knows that that could break. Is there something that we're not seeing that could break?
I think it's amazing when you talk about Marcus that sometimes it's and the press sometimes like a bunch of birds flocking to one thing with endless common about it. Yes, that's an issue. So you know, if you look at office real estate in B and C real estate will private problem Chicago, New York, Partland, Seattle, but probably not Nashville, Tampa, Orlando, Miami, etc. So you got to you gotta be a little more
thoughtful about it. And I think if I'm the number banks have six hundred billion of office commercial real estate, you know they had a cushion or you even dropped and die. They self equity in it. Maybe something that will go bad, particularly the recession, they're gonna be Okay. It may take a few banks down. That's normal. Stuff that isn't abnormal. What is abnormal is the war trade the future of democracy. That is abnormal. I'm much more concerned about that than.
The markets trade that. Right, if there's a big geopolitics, there's there's how do the markets talk them do that?
Okay, Look, if I was a we're cautious I remind people, I'm not businesses aren't there to trade its. Sometimes they don't serve our clients, okay, and so we're gonna serve our clients no matter what happened.
James, very quickly, final question, how are you feeling about the Epstein deposition this month?
I am so sad that we had any relays with that man whatsoever. You know, we had top lawyers of value in this, from the SEC, Enforcement, the DOJ, you know, and obviously have we known them. We know today we would have done things differently. But it's very unfortunate, and I have deep respect for these women. That doesn't mean reliable for the action of an individual, but I do have deep respect for them. My heart goes out to them.
And that was JP Morgan Chase CEO Jamie Diamond speaking with Bloomberg's Francine Lockcroawt from Paris. You can catch the full conversation on Bloomberg dot Com, on the Bloomberg terminal, and at the Bloomberg Business app.