Clash of the titans: Dimon vs. Bernanke

J.P. Morgan Chase & Co. CEO Jamie Dimon's public questioning of Federal Reserve Chairman Ben Bernanke on bank regulatory costs has "thrown down the gauntlet" in the industry's increasingly aggressive fight to curb higher capital requirements and other rules.

"They threw out the first ball, now can they play the game?" William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview. "How persuasively can Dimon and others make their case?"

Dimon, head of the most profitable U.S. bank, took an unusual step in pressing Bernanke in a public forum Tuesday on whether regulators have gone too far in reining in the U.S. banking system and are slowing economic growth.

Poole, who warned of Fannie Mae's and Freddie Mac's risks years before the mortgage giants collapsed and who also supports higher capital requirements for banks, said Dimon had a valid point. Excessive regulation in the U.S. is slowing the economic recovery, Poole said.

"The issue is whether intellectual leaders across a wide variety of industries, think tanks, can be persuaded," Poole said. "He's thrown down the gauntlet. Now what is needed are detailed studies of the costs of regulations."

An unprecedented bailout of the financial system in 2008 spurred Congress to pass hundreds of rules last year as part of the Dodd-Frank Act. Bank regulators worldwide also are devising new capital requirements. After Republicans won control of the U.S. House of Representatives last year, banks have stepped up their fight to blunt or head off the rules.

Dimon, 55, asked Bernanke if he's concerned that overzealous regulation will stymie an economic rebound.

Bernanke, 57, said Dimon's points are valid and that the Fed lacks the quantitative tools to study the net impact of all the regulatory and market changes in the past three years.

"It's too complicated," Bernanke said, adding that he thinks there's a way to safely regulate banks while preserving their ability to deliver "basic financial services."

Federal Deposit Insurance Corp. Chairwoman Sheila Bair, when asked about Dimon's comments in New York on Thursday, defended higher capital buffers for the biggest banks and said U.S. regulators must guard against pressure to ease up on oversight as the nation recovers from the 2008 credit crisis.

"I see a lot of amnesia setting in now," Bair said during a question-and-answer session at the Council on Foreign Relations. "Banks are not doing a lot of lending now, and the ones that are doing the better job of lending are the smaller institutions that have the higher capital levels."

Dimon's public challenge to Bernanke was privately cheered by Wall Street peers, with senior executives at four rival firms saying they agreed with his point about the dangers of overregulation. One of the four, who spoke anonymously because they weren't authorized to comment, said Dimon's complaint may become counterproductive by leading to a backlash against bankers.

Dimon's position on the board of the Federal Reserve Bank of New York, as well as at the helm of the nation's second-largest bank, should give him access to Fed officials without airing his complaints in public.

"Most bankers operate behind the scenes," Miller said. "Why did Jamie feel he had to come out [in] public with this? Is he not getting any satisfaction behind the scenes?"