Kashkari fires back at Dimon

|By:, SA News Editor

Former Goldmanite, then TARP czar, and now Minneapolis Fed chief, Neil Kashkari takes serious issue with Jamie Dimon's (NYSE:JPM) state-of-the-world letter from earlier this week.

He labels as "demonstrably false" two of Dimon's key points: 1) That "Too Big to Fail" is no more, and 2) That banks have too much capital.

In Dimon's view, bank debt can be converted to equity in a crisis, forcing losses on the bondholders, and sparing taxpayers. If we've learned anything, says Kashkari, it's "that nothing beats equity for absorbing losses." Governments during a crisis, he says, aren't going to impose losses on debtholders for fear of contagion.

Turning to the "too much capital" argument, and its corollary that this is restricting lending, Kashkari wants to know why JPMorgan spent $26B buying back stock over the past five years if it had so much demand for additional loans.

Kashkari says he's all for reducing regulatory complexity, and notes the simplest way is a higher equity requirement for the largest lenders.

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