Key takeaways from Jamie Dimon’s Shareholder letter 2014

The banking system is a lot less risky compared previously

·         Higher capital level compared previously for most of the banks.

·         Highly liquid assets held by the banks

·         Not many complex and exotic products around

·         Higher underwriting standards

·         Many standardized derivatives are moving to the clearing houses.

Future threats to the banking industry will include

·         Ambitious large Chinese banks which has the scale and the strategic reason to compete and yet do not need to live by the same US rules that apply to the large US banks.

·         Silicon Valley companies such as lending club who is able to connect lenders and borrowers quickly.

·         Competitors in the payments industry such as Paypal and Bitcoin.

·         Cyber Security Threat.

Key changes to the banking industry

Non-bank competitors have become bigger lenders in the marketplace.

There is far less liquidity in the marketplace because of regulatory requirement resulting in low inventories of securities.

In the event of a crisis, banks are reluctant to extend credit because it utilize precious capital and in addition to the low liquidity in the market, hence the market in general could lead to increase volatility.