JP Morgan Chase 2010 Annual Report Download - page 32

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EventheidenticationofSIFIsorglobal
SIFIs creates issues: Does this status make
youabettercredit?Won’titcausedistor-
tions in the future as some people decide
thatitwillbesafertobankwithSIFIs?Are
the regulators going to make it clear what
a company could do to give up the SIFI or
global SIFI status and reduce your capital
requirements?Aretheregoingtobespecic
ways for specific SIFIs to reduce their capital
requirements?Willtheidenticationof
globalSIFIsbedonefairlyacrosscountries?
Willtherebebright-linetestsorwillitbe
up to the judgment of various bureaucra-
cies?Won’ttheidenticationofSIFIssimply
become a political process as you travel to
Washington,D.C.,toarguewhyyoushould
notbeaSIFI?
In short, we at JPMorgan Chase see the value
of higher capital and liquidity and the wisdom
of resolution plans and living wills that make
iteasiertoletbigbanksfail.Weevenbelieve
that banks should continue to pay for bank
failures.Wejustdon’tbelieveinarbitraryand
increasingly higher capital ratios.
The Need for Large Global Banks and
America’s Competitive Position
Companies come in various sizes, shapes
and forms. There are many reasons for
this. At JPMorgan Chase, we benefit from
huge economies of scale in our businesses.
The same goes for most large enterprises.
Economiesofscaleinourindustrygener-
ally come from technology, including data
centers, networks and software; the benefits
of global branding; the ability to make huge
investments; and the true diversification of
risks. The beneficiaries of these economies of
scale ultimately are the consumers who these
companies serve.
Moreover, in many ways, the size of our
company is directly related to the size of the
clients we serve globally. Our size supports
the level of resources needed to service these
large, multinational clients – and enables us to
take on the necessary risk to support them.
For some of our wholesale clients, we are
asked to make bridge loans or underwrite
securitiesof$10billionormore.Webuyand
sell trillions of dollars of securities a day and
move some $10 trillion of cash around the
worldeveryday.Whenweprovidecreditto
a client, it may include revolving credit, trade
finance, trading lines, intraday lines and
derivatives lines – often in multiple locations
globally – and often in the billions.
Inourretailbusiness,buyingWaMu
enabled us to improve branches in many
ways: adding salespeople; retrofitting and
upgrading each location; adding improved
products, services and systems; and saving
some$1millionateachbranch.Ultimately,
this allowed us to oer our clients better
products and services.
In a free market economy, companies
grow over time because they are winning
customers. These companies win customers
and grow market share because they – rela-
tive to the competition – are doing a better
andfaster(andattimeslessexpensive)job
of providing customers with what they want.
Consolidation does not cause crises, and the U.S.
banking system is far less consolidated than most
other countries
TheU.S.bankingsystemhasgonefrom
approximately 20,000 banks 30 years ago to
approximately7,000today.Thattrendlikely
will continue as banks seek out economies
of scale and competitive advantage. That
does not mean there won’t be start-ups and
successful community banks. It just means
that, in general, consolidation will continue,
as it has in many industries.
TheU.S.systemisstillfarlessconsolidated
than most other countries (see chart on next
pageontop).
In any case, the degree of industry consolida-
tion has not, in and of itself, been a driving
force behind the financial crisis. In fact, some
countries that were far more consolidated
(Canada, Australia, Brazil, China and Japan,
tonameafew)hadnoproblemsduringthis
crisis so there is not compelling evidence to
back up the notion that consolidation was a
major cause of the problem.