LONDON (MarketWatch) — You ain’t seen nothing yet, when it comes to market wreckage from a financial crisis, according to J.P. Morgan boss Jamie Dimon.
In his annual letter to shareholders, the bank’s chief executive warned “there will be another crisis” — and the market reaction could be even more volatile, because regulations are now tougher.
He argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Banks could become reluctant to extend credit, for example, and less likely to take on stock issuance through rights offering, which would essentially create a shortage of securities.
“There will be another crisis — and the market reaction could be even more volatile”
Such factors “make it more likely that a crisis will cause more volatile market movements, with a rapid decline in valuations even in what are very liquid markets,” Dimon said in the letter. “Recent activity in the Treasury markets and the currency markets is a warning shot across the bow.”
The J.P. Morgan CEO pointed to the 40 basis-point move in Treasury securities on Oct. 15 as one of those warning shots. The move — though “unprecedented” and “an event that is supposed to happen only once in every 3 billion years or so” — was still relatively easily absorbed in the market and no one was significantly hurt by it, he noted.