NEW YORK (
) -- Two big bank CEOs,
Jamie Dimon and
Bank of America's
Brian Moynihan, have diverged on how to play the Washington policy game in light of the most cumbersome financial reform legislation in nearly a century.
As Senate and House of Representatives lawmakers huddle up to reconcile the final version of the financial reform bill, with the intention of having a bill ready for President Obama to sign by July 4,
decided to parse the rhetoric of these two executives on some of the more controversial issues of the reform proposal.
While the major policy difference between Moynihan and Dimon is their view on the proposed separate regulatory entity that would regulate consumer products and practices -- Moynihan is for, Dimon is against -- the two CEOs do in fact agree on several other aspects of the bill, including the potential negative effects of derivatives reform.
Still there is a difference in the manner in which have addressed Washington as reform legislation has wound its way through Congress. Bank of America's Moynihan seems to be courting the Obama administration and policymakers with a softer stance -- a fact that may reflect that he has been on the job for just six months, and his bank is still involved in meeting the regulatory demands of its December TARP repayment by continued asset sales.
Rochdale Securities analyst Dick Bove seems to think that Bank of America taking a pro-active approach, that the company "is lining up its strategy with the U.S. government's view of banking," as he said in a note last week. Moynihan, speaking at an investor conference recently, "refused to attack financial regulation legislation, which in its current form is sure to cost his company billions in pretax profit," Bove writes.
On the other hand, JPMorgan "is not happy about potentially losing billions in pretax profit due to the proposed legislation and it has stated so publically," Bove notes, describing the bank's operating philosophy as "diametrically opposed" to that of Bank of America.
Dimon, whose institution has arguably remained one of the best-run large banks throughout the crisis even as it snapped up Bear Stearns and Washington Mutual, hasn't been shy about publicly objecting to many aspects of the bill. It's a strategy that uses his status on Wall Street to artful advantage.
Here's a look at the differing approaches of Dimon and Moynihan to key reform issues over the past few months.
On the Need for Legislation:
Both executives agree reform is vital to the success of the financial industry going forward, but they part ways on just how comfortable they are in Washington's ability to "known when to say when" with regard to legislation. Dimon is definitely of the "less is more" camp.
"In striking this regulatory balance, the details matter. We should focus on building good regulation - not simply more or less of it. The last thing we need is to enact new policies that over-regulate and work at cross-purposes without reducing system-wide risk. None of us can afford the costs of unnecessary or bad regulation," Dimon wrote in JPMorgan Chase's annual letter to shareholders in early April.
Moynihan is more trusting.
The tone is Washington is "tough," Moynihan said in an interview with
Fox Business Network
around the same time. "There is no question. But I think underneath it, I am optimistic and I believe that the people are trying to do the right thing. ... But we have to be careful and make sure we do it right, because this will -- as you've heard many of them say, this will last for generations if we do it right."
On Too Big To Fail:
JPMorgan Chase's Dimon (pictured above) has been extremely public with his thoughts on the issue of "too big to fail." He even wrote a strongly worded op-ed piece in the
back in November expressing that financial institutions should be allowed to fail -- even as a result of some unforeseen circumstance. He is adamantly against capping the size of financial services firms.
"Scale can create value for shareholders; for consumers, who are beneficiaries of better products, delivered more quickly and at less cost; for the businesses that are our customers; and for the economy as a whole," Dimon wrote in the November piece. "Artificially limiting the size of an institution, regardless of the business implications, does not make sense."
"As we have seen clearly over the last several years, financial institutions, including those not considered 'too big' can pose serious risks for our markets because of their interconnectivity," he said. "A cap on the size of an institution will not prevent that risk."
Moynihan was less strident but his view was largely in line with that of Dimon when he was asked during the
interview whether he thought Bank of America qualified as "too big to fail."
"We're not too
big to fail -- you've got to separate that into two questions. Where we draw the line is we have to be the size we are to do the things
we do for customers. And that comes along multiple dimensions. What we have done in the consumer area in terms of giving the American consumer relief on overdraft fees, you can only do when you're our size," Moynihan answered.
On Derivatives Reform:
Dimon has vehemently opposed the Volcker rule -- which would prohibit banks from engaging in proprietary trading. He has also expressed caution on derivatives reform, which has been championed by Sen. Blanche Lincoln (D., Ark.) (pictured above) and includes calls to move trading in some over-the-counter derivatives to more transparent exchanges and for banks to possibly lose their swaps desks.
"It is very hard to have a positive impact. The devil is in the details here. When we over-simplify, we are not doing justice to the issue. We do believe that most standardized things will go to clearinghouse and that is fine. That in and of itself doesn't have a huge impact on revenue," Dimon said during JPMorgan's first-quarter conference call in late April.
"Then there is the issue about how many of those and other trades go through an exchange and the transparency that could or couldn't
result depending on how it is designed. How much room is left to have exceptions to over-the-counter or end-user exceptions?
That is not defined yet. It will be a negative," to the tune of $700 million to $1 billion, Dimon added.
In a recent interview with
The Seattle Times
, Moynihan said that a central clearinghouse for derivatives was a good idea, but individually tailored derivatives shouldn't be barred outright. Commercial banks also shouldn't have to spin off their derivatives trading businesses into separate subsidiaries. Moynihan also questioned the Volcker rule.
"We understand that people want banks to use their capital to support the 'real economy,' not just to make money," Moynihan said. "The problem is that it's hard to tell what's what. What I might call proprietary you might say isn't proprietary and we could have an argument."
On Consumer Protection Agency:
Dimon is generally supportive of stronger consumer protection rules but not the creation of a separate oversight agency to police them.
"The new agency is just a whole new bureaucracy," a
article quoted him as saying at an investor conference late last year.
This is where the two banking titans seems to differ the most. Moynihan (pictured above) is supportive of creating a new agency. His requirements are that it increase the level of transparency for products and businesses as well as be "simple and fair without singling out one type of financial institution," according to
Moynihan echoed that sentiment again in February when
The Wall Street Journal
reported his main concern was some uniformity in the rules as he wanted to avoid dealing with different sets of regulations for each state.
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--Written by Laurie Kulikowski in New York.