Despite US Financial Reforms... The 'Too Big to Fail' Specter Still Haunts Wall Street

The U.S. regional banking crisis has been found to contribute only to the growth in size and substance of mega banks like JP Morgan. Despite the financial reform overhaul targeting Wall Street, the epicenter of the 2008 global financial crisis, the industry’s “the rich get richer, the poor get poorer” phenomenon has deepened, revealing the limits of the too-big-to-fail doctrine.

On the 22nd (local time), JP Morgan announced at its Investor Day event that it plans to spend $15.7 billion (about 21 trillion won) this year on new initiatives including hiring, marketing, and technology investments. Foreign media described this as an “unmatched” spending plan, increasing by $2 billion compared to last year.

JP Morgan raised its annual net interest income (NII) forecast for this year from the previous $81 billion (about 107 trillion won) to $84 billion, stating that the acquisition of First Republic will bring greater profits. The previous forecast of $81 billion had already been raised by $7 billion from an earlier estimate.

The increase in the core revenue source, NII, is attributed to the sharp interest rate hikes by the U.S. Federal Reserve (Fed) and the bank run crisis that hit regional banks, from which JP Morgan gained a windfall. JP Morgan posted a surprise performance in the first quarter thanks to the bank run benefits. During this period, revenue was $39.34 billion, significantly exceeding market expectations of $36.19 billion, and earnings per share also surpassed market estimates of $3.41, reaching $4.32. Deposits held during the same period surged by $37 billion year-over-year to $2.38 trillion.

[Image source=Reuters Yonhap News]

Wells Fargo analysts described JP Morgan’s Investor Day event by saying “Goliath has won.” CNBC, a U.S. economic media outlet, analyzed that JP Morgan was one of the few banks whose customer deposits increased because regional bank customers, feeling uneasy after the regional banking crisis intensified in March, moved their deposits.

JP Morgan made a surprise acquisition of First Republic, which was in crisis, on the 1st. With 4,800 branches nationwide, JP Morgan will add 93 branches through the First Republic acquisition. JP Morgan also expanded its size by acquiring Bear Stearns and Washington Mutual during the 2008 global financial crisis.

Jamie Dimon, CEO of JP Morgan, explained the integration process after acquiring First Republic, saying, “First Republic will help improve our wealth even further.”

JP Morgan currently holds 13% of total U.S. deposits and more than 21% of U.S. credit card spending. This is the largest scale among single banks in the U.S., and the Wall Street Journal (WSJ) analyzed that large banks like JP Morgan have grown bigger and their influence has become more extensive due to the windfall from the collapse of regional banks.

Jamie Dimon, CEO of JPMorgan.
Photo by AP Yonhap News

The WSJ pointed out that the oversized nature of these mega banks creates a vicious cycle where, in times of crisis, the government prioritizes bailouts for too-big-to-fail banks over market rules, and lending is concentrated only on large banks, ultimately causing greater sacrifices for small and medium-sized banks.

There is also an assessment that despite the major reform overhaul of Wall Street, the epicenter of the 2008 financial crisis, the system’s limitations remain exposed, revealing the raw reality of the U.S. financial industry.

Gene Ludwig, former head of the Office of the Comptroller of the Currency (OCC), the U.S. banking system regulator, emphasized, “Small banks provide services to industries and regions not supported by mega banks,” adding, “In this respect, it is necessary to maintain small banks for ecosystem diversity.”

Meanwhile, at the event, Jamie Dimon, the longest-serving CEO on Wall Street, was asked how much longer he plans to remain CEO. He smiled and answered, “Three and a half years,” adding that he had given the same answer before.

This content was produced with the assistance of AI translation services.