New York City – December 8, 2023
In a striking move, CEOs of Wall Street’s major banks voiced their resistance to proposed banking regulations during an annual Senate oversight hearing on Wednesday. The regulations, part of the Basel 3 endgame, aim to elevate capital requirements for U.S. banks with assets exceeding $100 billion. The executives, including Jamie Dimon of JPMorgan Chase, raised concerns about the potential repercussions on the economy, businesses of all sizes, and American households.
JPMorgan Chase CEO Jamie Dimon asserted that the rules if implemented without modification, would have “predictable and harmful outcomes to the economy, markets, business of all sizes and American households.” Dimon further warned that the regulations, as currently structured, could lead to a 25% increase in capital requirements for the largest banks.
The banking leaders, representing institutions like Bank of America and Goldman Sachs, are advocating for mitigating the impact of the proposed rules, which are set to be fully phased in by 2028. Their primary contention is that heightened capital requirements would likely hamper industry profitability and growth, potentially favoring nonbank players such as Apollo and Blackstone.
While the major banks assert their ability to comply with the regulations, they acknowledge the presence of both winners and losers. Small business owners, mortgage customers, pensioners, and investors, particularly those in rural and low-income communities, are among the potential casualties, according to statements from Dimon and other CEOs.
Dimon voiced apprehension about the possibility of increased costs and reduced accessibility for “mortgages and small business loans,” particularly affecting individuals with low to moderate incomes. Additionally, he underscored the potential consequences of savings for college or retirement, anticipating diminished returns due to rising costs for asset managers, pension funds, and money-market funds.
The CEOs also emphasized broader economic implications, suggesting that the increased cost of capital could make financing government infrastructure projects, such as hospitals, bridges, and roads, more expensive. Additionally, they warned that corporate clients may face higher costs for hedging commodities, leading to increased consumer expenses.
Citigroup CEO Jane Fraser added a perspective on the potential impact on farmers in rural communities, stating, “It could impact them in terms of their mortgages, it could impact their credit cards. It could also importantly impact their cost of any borrowing that they do.”
Beyond economic concerns, the CEOs raised a red flag about the unintended consequences of heightened oversight of banks. They argued that regulators, by intensifying scrutiny on traditional banks, might inadvertently encourage financial activities to shift toward nonbank players, commonly referred to as shadow banks, thereby leaving potential risks unmonitored.
During the three-hour hearing, lawmakers’ questioning largely reflected partisan lines, with Democrats expressing skepticism towards the executives, while Republicans focused on potential harms to everyday Americans. Senator Sherrod Brown, an Ohio Democrat, criticized the banks’ lobbying efforts against the Basel 3 endgame, challenging claims that cracking down on Wall Street could negatively impact working families.