Jamie Dimon of JPMorgan Chase warns that U.S. default will be “possibly catastrophic”

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JPMorgan Chase CEO Jamie Dimon (Jamie Dimon) speaks to the Economic Club of New York in New York on January 16, 2019.

Carlo Allegri | Reuters

JPMorgan Chief Executive Jamie Dimon told Reuters on Tuesday that he had begun to prepare for the possibility of the U.S. reaching the debt ceiling, but he added that he expected policymakers to find a solution to avoid a “potential “Catastrophic” event.

Dimon said in an interview that the country’s largest bank has begun to plan scenarios for how potential US credit defaults will affect repurchase and currency markets, customer contracts, their capital ratios, and how rating agencies will react.

“It’s like we have to do this for the third time. It’s a potentially catastrophic event,” he said.

“Every time this happens, it will be resolved, but we shouldn’t even get close to this. I just think this whole thing is wrong, one day we should enact a bipartisan bill and get rid of the debt ceiling. This It’s all political issues,” he added.

Congressional Democrats are scrambling to find ways to increase the government’s $28.4 trillion borrowing limit before the Treasury Department exhausts its methods to repay the national debt. Treasury Secretary Janet Yellen has said that the Treasury Department may exhaust extraordinary measures before October 18. (full text)

Democrats had hoped to avoid partial government shutdowns and pass a vote to suspend the federal debt ceiling. But they were obstructed by Republicans in the Senate on Monday, who said the two matters should be handled separately.

Due to continued partisanship, fiscal marginalism has become a regular feature of American politics in the past decade, and debt ceiling transactions were finalized in 2011 and 2017.

Dimon said that as part of the preparations, the bank is sorting out its customer contracts, which is a resource-intensive process.

“You have to check the contract to try to predict it… If I remember correctly, the last time we prepared for this, it cost us $100 million,” he said.

racial equality

Dimon spoke to Reuters before the ribbon-cutting ceremony at the bank’s new branch in southeastern Washington as part of JPMorgan’s efforts to promote racial equality by increasing its presence in underserved communities.

This branch is the first trade support JPMorgan Chase has opened in cities such as New York, Detroit, Los Angeles and Chicago since 2019.

“This is not a traditional bank branch, we want it to be very popular, and we want it to be attractive,” Dimon said.

Following last year’s nationwide “black life is also a life” protest, JP Morgan Chase pledged to invest 30 billion U.S. dollars within five years to promote racial equality. This includes 40,000 new mortgages and 15,000 small business loans to black and Latino communities.

This investment highlights how large companies are increasingly accepting social, environmental and governance or ESG issues under investor pressure.

Resolving the issue of racial equality is also a priority for President Joe Biden’s administration, which has stated that bank branches “desert” have perpetuated inequality by reducing access to credit.

Biden’s acting currency controller, Michael Xu, said this month that he would repeal the controversial changes to the fair lending law led by Trump’s predecessor and begin new reviews with other banking regulators.

Dimon said that around the rules of the Community Reinvestment Act, regulators rate banks based on the extent to which they serve poor communities. They need to be modernized regularly to cope with changes driven by bank technology. Dimon said that the overall law is beneficial to the country.

“It’s very complicated, very slow, very late, and very difficult to measure,” he said, adding that CRA assessments should also be conducted in real time, rather than a retrospective review every few years.

“Did it really capture everything? No. Is it real-time? No. Is it politicized? Absolutely.”

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