Marrakech: The US economy is holding up in the face of various challenges but a string of political and economic risks could trigger a deterioration, according to JP Morgan Chase & Co. president Daniel Pinto.
Consumers and businesses are strong with high levels of savings and robust finances, but issues such as inflation remaining high and interest rates staying elevated or being increased further would create stress, Pinto said, speaking at the Institute of International Finance meetings in Marrakech, Morocco.
There are “plenty of things that could go wrong,” Pinto said. They include an escalation of problems related to Russia’s attack on Ukraine, the Hamas attack on Israel and complications from the US’s relationship with China, he added.
The international picture is “very, very complex,” according to Anne Richards, CEO of Fidelity International. “It is probably the most complex picture I can think of in many, many years,” Richards said at the same event.
Earlier this year, the banking industry was roiled by the collapse of a slew of regional lenders in the US, including Silicon Valley Bank and Signature Bank. In an effort to prevent a repeat of such failures, regulators need to be careful and avoid measures that could stifle investment, Richards said.
In the event of higher standards designed to prevent any failure, “more risk capital will flow through into non-bank sector,” Richards said, adding that could create a problem in that area.
Right tools
The question should be about dealing with systemic problems and having the right tools “in moments of stress,” Richards said. Actions such as gating by mutual funds to manage outflows should be seen as a legitimate way to deal with a short-term crisis, or else mutual funds will be restricted in what they can invest in, she said.
There should be questions about the business models of medium-sized banks to ensure they are sustainable, Pinto said.
First Republic Bank, which JPMorgan purchased after it suffered a run on deposits amid the wider banking turmoil earlier this year, had mismanaged its interest-rate risk, making it vulnerable in the eyes of customers and investors. But many of its assets were “pristine,” Pinto said. “They just had them at the wrong price.”
Against the backdrop of tumult in the bond market, Richards said there was evidence political risks are spilling into financial markets to a greater degree than in the recent past.
Having lived through an age of “centrist political stability,” conditions have changed with the more febrile political atmosphere in the UK and US feeding through into market swings, Richards said.
