JPMorgan CEO Jamie Dimon said the next financial crisis could bring “more volatile” markets and a “rapid decline in valuations” as regulators have hamstrung banks.

JPMorgan's Dimon: Next Crisis Could Be More Volatile

In his annual letter to shareholders, he indicated that the trigger of the next crisis will not be same as the last one, but no matter what, the next crisis will come in time.

Banks’ role as shock absorbers dramatically hindered

Dimon cautioned that some things never change and there will be another crisis, and its impact will be felt by the financial markets.  He warned that the ability of JPMorgan and other banks to act as shock absorbers has been dramatically hindered by the new capital and liquidity crisis.

In his letter, Dimon indicated that unlike in 2008 when JPMorgan attracted $100 billion of deposits from weaker competitors, it was “unlikely that we would want to accept new deposits the next time around.”

Dimon has been known for his willingness to challenge the regulatory architecture put in place since the 2008 crisis. In his letter to shareholders, he repeated his complaints that different agencies were ganging up on banks, which were “now frequently paying penalties to five or six different regulators (both domestic and international) on exactly the same issue.”

In recent years, JPMorgan’s numerous run-ins with regulators included mis-selling mortgage-backed securities and allegations of manipulating foreign exchange markets. The bank also got embroiled in to the “London Whale” case involving the $6.2 billion in credit derivative trading losses sustained by the bank in 2012.

JPMorgan: “A thought exercise” on next crisis

In his annual letter to shareholders, Jamie Dimon devoted three pages to a “thought exercise” of what might be different in the next crisis. He suggested that the money markets (deposits, repos, short term Treasuries) will behave differently in the next crisis. He said buyers of credit (loans, secured loans, underwriting and investments) will be more reluctant to extend credit. He also indicated that the markets in general could be more volatile, which could lead to a more rapid reduction of valuations.

He termed last year’s volatility in U.S. Treasuries as a “warning shot” to investors and added that the next financial crisis could be exacerbated by a shortage of securities. He said the October 15 gyration when Treasury yields fluctuated by almost 0.4 of a percentage point, was an “unprecedented move” that would have serious consequences in a stressed environment.

The JPMorgan CEO, however, also pointed out in his letter that the underlying business was performing well, though thanks to uncertainty about legal and regulatory costs, “Our stock performance hasn’t been particularly good in the last five years.”  He said enduring uncertainty about the final capital levels to be demanded by the Federal Reserve meant it was “understandable that people would pay less for our earnings than they otherwise might pay.”

Touching upon the bank’s expansion initiatives, he mentioned the “surprise” retail bank openings in 2016 and the bank’s intention to be “very aggressive” in expanding its payment business.