March 11, 2009 / 6:28 PM / in 9 years

JPMorgan CEO sees "modest signs" of recovery

WASHINGTON (Reuters) - JPMorgan Chase & Co Chief Executive Jamie Dimon said on Wednesday he sees “modest signs” of an economic recovery and endorsed a plan to create a U.S. systemic risk regulator.

<p>JPMorgan Chase's Jamie Dimon on Capitol Hill in Washington, February 11, 2009. REUTERS/Larry Downing</p>

Dimon, speaking at a U.S. Chamber of Commerce economic conference, also supports mark-to-market accounting, but banks may have applied the fair value rule “to a ridiculous point.”

The mark-to-market accounting rule, which requires assets to be valued at market prices, is defended by investor advocates and some lawmakers as giving a clear picture of the assets held on banks’ books. But the banking industry, which has been forced to write down billions of dollars’ worth of hard-to-value assets in illiquid markets, has pleaded for a suspension or modification of the rule.

Dimon endorsed the idea of creating a U.S. systemic risk regulator, a plan proposed by U.S. Rep. Barney Frank, chairman of the House of Representatives Financial Services Committee. Frank plans a broad overhaul of U.S. financial regulation this year.

Christopher Dodd, chairman of the U.S. Senate Banking Committee, said on Wednesday he hopes to have comprehensive reform legislation to address the regulation of the financial services industry by the summer, instead of a series of proposals being considered in the House.

“There are modest signs of recovery and healing out there,” Dimon told the chamber, adding the market just saw the two most active bond months ever.

Banks, reeling from the U.S. financial crisis as the economy remains mired in a recession, have seen their stock prices tumble. Some have blamed short-sellers for pushing down stock prices.

Several months ago, the Securities and Exchange Commission temporarily implemented a ban on short selling aimed at halting the drop of financial services stocks.

Dimon said short-selling and the lapse in the so-called “uptick rule” contributed to the credit crisis.

The SEC said on Wednesday the agency could act in April to reinstate the uptick rule, which allowed short sales only when the last sale price was higher than the previous price. It was abolished by the SEC in 2007.

Speaking to reporters after his speech, Dimon said he opposes the nationalization of U.S. banks.

“I don’t think any banks should be nationalized. It doesn’t work. It’s a mistake,” he said.

Dimon said nationalization means different things to different people, but some banks may need some government help and they should remain as private as possible, he added.

He said if a bank is in really poor shape the Federal Deposit Insurance Corp has the responsibility to deal with it. “That’s what the FDIC is for,” he said.

The FDIC, which insures up to $250,000 per depositor, takes control of failed banks in a process in which sometimes a buyer is found or the agency takes control of the failed bank’s assets.

In a wide-ranging speech, Dimon also criticized the Basel II international banking accord, saying the capital adequacy plan “allowed too much leverage by banks.”

Dimon addressed the government stress tests, which U.S. banks with at least $100 billion in assets are undergoing in order to determine how they would withstand even more severe economic conditions. Regulators want to know how much capital or other aid they might need in the event of those economic conditions.

Dimon believes banks will survive the tests, which could help “create a lot of credibility within the system.”

JPMorgan is among many institutions that received capital injections from the government, but like other bank CEOs, Dimon wants to return government money as soon as possible.

Some banks, unhappy with government’s executive compensation restrictions, are seeking to return the money.

Criticized for failing to lend to consumers and businesses, banks that received government aid argue they are lending. Dimon reaffirmed banks are lending due to the government’s capital injections.

He also said banks should try “not to overreact” to the restrictions the government is placing on banks receiving federal funds.

Reporting by Karey Wutkowski and John Poirier; Editing by Matthew Lewis and Andre Grenon

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