Banks will lose ability to act as a buffer, he says Getty ImagesJ.P. Morgan CEO Jamie DimonYou ain’t seen nothing yet, when it comes to market wreckage from a financial crisis, according to J.P. Morgan boss Jamie Dimon. In his annual letter to shareholders, the bank’s chief executive warned “there will be another crisis” — and the market reaction could be even more volatile, because regulations are now tougher. He argued the crackdown on the financial sector, added to more-stringent requirements for capital and liquidity, will hamper banks’ capacity to act as a buffer against shocks in financial markets. Banks could become reluctant to extend credit, for example, and less likely to take on stock issuance through rights offering, which would essentially create a shortage of securities. Such factors “make it more likely that a crisis will cause more volatile market movements, with a rapid decline in valuations even in what are very liquid markets,” Dimon said in the letter. “Recent activity in the Treasury markets and the currency markets is a warning shot across the bow.” The J.P. Morgan JPM, +0.05% CEO pointed to the 40 basis-point move in Treasury securities on Oct. 15 as one of those warning shots. The move — though “unprecedented” and “an event that is supposed to happen only once in every 3 billion years or so” — was still relatively easily absorbed in the market and no one was significantly hurt by it, he noted. “But this happened in what we still would consider a fairly benign environment. If it were to happen in a stressed environment, it could have far worse consequences,” Dimon said. There’s also the issue of clearinghouses. Clearinghouses sit between the two sides of financial trades and have, since the financial crisis, worked as risk managers for global markets. But that could also exacerbate the next crisis, according to the J.P. Morgan chief. “Clearinghouses are a good thing, but not if they are a point of failure in the next crisis,” he said. “It is important to remember that clearinghouses consolidate — but don’t necessarily eliminate — risk.” But here’s for the good news. Banks won’t be at the center of the next crisis, Dimon believes. His view is that while they may not be able to act as a shock absorber because of tight regulations, they are overall safer and stronger than before. “Fundamentally, as long as the economy is not collapsing, financial markets generally recover,” he said. Sara Sjolin