JPMorgan’s Dimon Sees Banking System ‘Shrinking’ Relative to FinTechs and Private Markets

JPMorgan Chase CEO Jamie Dimon weighed in on all manner of subjects in his latest annual letter to shareholders — taking particular note of the changing competitive landscape in financial services.

And he warned that regulatory frameworks for banks may make delivering those services more expensive.

PYMNTS took note of Dimon’s sentiments on artificial intelligence (AI) in an earlier post on Monday (April 8).

Dimon also commented in the letter that “the banking system as we know it is shrinking relative to private markets and fintech, which are growing and becoming increasingly competitive.”

Those digital and private firms also “do not have the same transparency or need to abide by the extensive rules and regulations as traditional banks, even if they offer similar products — this often gives them significant advantage,” Dimon wrote, pointing to startup banks and FinTech banks. He gave tech behemoth Apple as an example which, he wrote, “effectively acts as a bank — it holds money, moves money, lends money and so on.”

Advantages of Competition

There are some advantages here, Dimon said — chiefly in the form of “dynamism and churn [that] are good for innovation and invention — with success and failure simply part of the robust process. Innovation runs across payments systems, budgeting, digital access, product extensions, risk and fraud prevention, and other services.”

In terms of JPMorgan’s own tech initiatives, Dimon wrote that in 2023, the company invested about $2 billion to build four private cloud-based data centers in the United States, and now has 32 data centers globally. To date, about 50% of the bank’s applications run a large part of their processing in the public or private cloud. About 70% of JPMorgan’s data is now running in the public or private cloud.

“By the end of 2024, we aim to have 70% of applications and 75% of data moved to the public or private cloud,” Dimon said in the letter.

The CEO also sounded some alarm about private credit — specifically that “new financial products that grow extremely rapidly often become an area of unexpected risk in the markets. Frequently, the weaknesses of new products, in this case private credit loans, may only be seen and exposed in bad markets, which private credit loans have not yet faced.” There may even be a “credit crunch” as private creditors may find it hard to roll over loans during times of macro stress.

Risks of Regulation

With some discussion of Basel III — a proposal that operates as a regulatory framework for bank capital requirements and stress testing — Dimon said:

“Everyday consumer goods could be impacted. Households contending with inflation could also feel the effects of higher capital requirements on market-making activities when they shop. From beverage companies that need to manage aluminum costs to farms that need to protect against environmental risks, if the cost of hedging those risks increases, it could be reflected in what consumers pay for everything from a can of soda to meat products.”

The cost of securitizing loans, including small business loans, Dimon said, “will rise for banks, nonbanks and government agencies. Not only that, but the proposal will likely lead to reductions in the size of unfunded credit card lines, which will put pressure on FICO scores.”