In the summer of 2012, Jamie Dimon told the U.S. Senate that broadly he supported solid bank regulations.
“I think the most important thing regulators can do is high capital, good liquidity standards, proper disclosures, proper governance, proper function in risk committees,” Dimon said as he was grilled about how, exactly, America’s largest bank had managed to lose a sum that would rise to $6.2 billion in synthetic securities trades in just over a month and a half. “I supported parts of regulation and reform, he retorted when a Senator suggested he had opposed new banking regulations after the global financial crisis. “I supported higher capital and higher liquidity.”
This curious-seeming defense of bank regulations was hardly a one-off for Dimon. A few weeks before, he’d told Meet the Press that “we have supported 70% or so of Dodd-Frank, we supported resolution authority, we support higher capital liquidity, JPMorgan also has higher capital liquidity.”
Indeed, Dimon was reading his dog-eared government relations playbook: broadly, support regulation, so long as it’s smart and effective; specifically, support rules, like higher capital requirements, that gives J.P. Morgan a relative advantage over its competitors; relentlessly work to influence the writing of those rules and exert influence over the regulators that implement them.
Higher capital requirements, for example, are a general idea that Dimon supports, they happen to not be as big a deal for J.P. Morgan because the bank is well-capitalized to the point of cliche – the phrase “fortress balance sheet” appears five times in its most recent annual report, a dip from some recent years – and, while they appear on first-blush to be a simple, broad-strokes kind of regulation, they are in practice insanely detailed and subject to years of wrangling between federal agencies and phalanxes of corporate lawyers.
All of which brings us to Facebook.
“Remember the internet in ‘96?” a recent TV ad from the social media giant asks, as an icon of a dial-up modem slowly connecting to the web flashes on screen. The internet is very different now, Facebook’s ad points out, yet 1996 is “the last time comprehensive internet regulations were passed. We support updated internet regulations.” A broad sentiment that with a few key changes could have come from Jamie Dimon.
Initially, Facebook wanted there to be a legal requirement for every social media company to self-regulate their platform almost precisely as Facebook currently regulates itself.
This proposal, floated in the spring, wasn’t just self-serving in the sense that it would require basically nothing at Facebook to change, it would also put any company trying to compete with Facebook, particularly a small one, at a huge competitive disadvantage. It’s important to remember that in classic business school terminology, regulation is a competitive “moat” that keeps other companies from encroaching on your business, allowing you to earn higher returns that would be possible in a fully-free marketplace. (Mark Zuckerberg’s mentor and Facebook board member Peter Thiel is famously enamored with monopolies and thinks corporate competition is a losing game.)
A bi-partisan group of Senators quickly rejected this idea.
But there’s another idea, floated by critics of Facebook, including the whistleblower Francis Haugen, who is set to testify in the U.K. on Monday: create a new regulator dedicated to policing internet platforms.
That seems very harsh, but it’s important to note that for all they disagree on, Haugen and Facebook’s executives’ shared sense of tech exception leads them to agree that there needs to be a new, special regulator for internet companies.
Facebook also supports creating a brand new, dedicated internet regulator, it’s vice president of global affairs Nick Clegg wrote in a USA Today op-ed last week.
Facebook’s gambit here is pretty clear: play a sophisticated game of create and regulatory capture with this new agency. Right now, the company has to deal with a bevy of different federal regulators, including a Federal Trade Commission helmed by a dedicated antitrust expert.
Things would be much easier for Facebook it the company could direct the full force of its lobbying machinery towards influencing that law that creates a new regulator. And as it gets up and running, Facebook can work to influence who works there, how they write the rules implementing regulations and how long that process takes.
In real estate terms, a brand new internet oversight agency is a unique opportunity for Facebook to build its forever home-slash-regulator to its exact specifications.
Clegg gave away the game in his USA Today piece. The new federal agency, he wrote, would ideally regulate internet platforms “much like the Federal Communications Commission has successfully exercised regulatory oversight over telecoms and media.”
Looking at just how pliable the FCC has been towards the telecom industry, and how wildly profitable telecoms have been under those lax regulations, it’s easy to see why Facebook would be happy with such an outcome. Indeed, it’s an outcome that would make a master of regulatory capture like Jamie Dimon envious.