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Can investors relax when it comes to the recent banking crisis? Not according to Jamie Dimon. The JPMorgan Chase (NYSE:JPM) CEO recently addressed the aftermath of the collapse of Silicon Valley Bank.
In a letter to shareholders, Dimon lays out why he feels the crisis is far from over. The CEO also says the current situation is far different from the 2008 financial meltdown. Per the letter:
“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.”
The fact that bank stocks are falling today seems to support to his argument. Will they keep falling in the coming months? Let’s take a look at Dimon’s letter and assess what investors can expect as the dust continues to settle.
What’s Happening With Bank Stocks?
Many bank stocks closed in the red today as a result of general negative market momentum. JPM stock itself closed down by 1.3% today, on par with Goldman Sachs (NYSE:GS) and slightly better than Bank of America (NYSE:BAC). Meanwhile, First Republic Bank (NYSE:FRC) closed down by more than 5%. Finally, UBS Group (NYSE:UBS) ended in the green by just over 1%, although it was still a very bad day for bank stocks overall.
This likely isn’t a surprise to Dimon. In his shareholder letter, the CEO argues that the recent failures of SVB Financial’s (OTCMKTS:SIVBQ) Silicon Valley Bank and Credit Suisse (NYSE:CS) underscore that it’s not enough for banks to simply satisfy regulatory requirements. In his words:
“Risks are abundant, and managing those risks requires constant and vigilant scrutiny as the world evolves. Regarding the current disruption in the U.S. banking system, most of the risks were hiding in plain sight. Interest rate exposure, the fair value of held-to-maturity (HTM) portfolios and the amount of SVB’s uninsured deposits were always known – both to regulators and the marketplace.”
However, Dimon also doesn’t see this financial crisis as the same as the 2008 crash. He raises a point that regional banks were barely affected by the previous market meltdown. That fact is in stark contrast to what has unfolded so far in 2023. “This current banking crisis involves far fewer financial players and fewer issues that need to be resolved,” Dimon said in the letter.
What Comes Next?
For bank stocks, the road to recovery may be difficult. Dimon certainly believes that the financial sector has a long way to go. However, he also highlights the importance of finding opportunity in the crisis that sent Wall Street into a tailspin.
That may be the opportunity to rebuild. The CEO raises the possibility of establishing a financial system “in which a bank failure does not cause undue panic and financial harm.”
It’s clear that such a system may indeed be needed to prevent similar scenarios. As InvestorPlace reports, several banks similar to SVB could be the next to crash. No one wants a repeat of this past month; the Silicon Valley Bank run sent bank stocks and more crashing down.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.
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