The 2008 phrase Jamie Dimon says is quietly making banks reckless

Jamie Dimon’s point is not that large banks should be recklessly exposed to failure with no preparation. It is that accountability has to be credible to be meaningful — and the phrase ‘too big to fail’ undermines exactly that.

‘The term “too big to fail” must be excised from our vocabulary,’ the JPMorgan Chase CEO has said, arguing that a guarantee of rescue, even an implicit one, removes the discipline that keeps institutions honest about their own risk. The phrase, in his view, does not just describe a problem in the system — it helps sustain one.

The phrase entered common use during the 2008 financial crisis, when governments decided some banks were too deeply woven into the economy to be allowed to collapse. Taxpayer money went in, banks were saved, and the language has stuck around ever since.

What has frustrated Dimon since is that the regulatory response to 2008 produced unintended consequences: the largest banks have in many cases grown even larger in the years since the crisis, making the question of what happens if one gets into genuine trouble more pressing now than before the rules were written to prevent exactly that.

Image: Wikimedia Commons/by Steve Jurvetson