(L to R) Brian Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, chairman and CEO of JPMorgan Chase; and Jane Fraser, CEO of Citigroup; testify during a Senate Banking Committee hearing at the Hart Senate Office Building on December 6, 2023 in Washington, DC.
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Wall Street CEOs on Wednesday opposed regulatory proposals aimed at increasing the capital levels they will need to meet future risks.
In prepared remarks and responses to questions from lawmakers during an annual Senate oversight hearing, the CEOs of eight banks sought to sound the alarm about the impact of the changes. In July, U.S. regulators unveiled a broad set of tougher standards governing banks, known as the final phase of Basel 3.
“This rule would have predictable and harmful consequences for the economy, markets, businesses of all sizes and American households,” JPMorgan Chase CEO Jamie Dimon told lawmakers.
If left unchanged, the regulations would increase capital requirements for the largest banks by about 25%, Dimon said.
The leaders of the largest American banks, including JPMorgan, Bank of America And Goldman Sachs are seeking to soften the impact of the new rules, which would affect all U.S. banks with at least $100 billion in assets and would not be fully implemented until 2028. The increase in the cost of capital would likely harm to the profitability and growth prospects of the sector.
This would also likely help non-bank players, notably Apollo And black stonewhich have gained market share in areas from which banks have retreated due to stricter regulations, including lending for mergers, buyouts and highly leveraged companies.
Even if all major banks can comply with the rules as currently set, it won’t happen without losers and winners, the CEOs testified.
Those who could be unintentionally harmed by the regulations include small business owners, mortgage customers, pensions and other investors, as well as rural and low-income customers, according to Dimon and the other executives.
“Mortgages and small business loans will be more expensive and harder to access, especially for low- and moderate-income borrowers,” Dimon said. “Saving for retirement or college will produce lower returns as costs rise for asset managers, money market funds and pension funds.”
With the cost of capital rising, government infrastructure projects will be more expensive to finance, making new hospitals, bridges and roads even more expensive, Dimon added. Corporate customers will have to pay more to cover the price of raw materials, leading to higher costs for the consumer, he said.
The changes would “increase the cost of borrowing for farmers in rural communities,” Citi Group » said CEO Jane Fraser. “It could impact their mortgages, it could impact their credit cards. It could also have a big impact on the cost of any loan they take out.”
Finally, the CEOs warned that by increasing supervision of banks, regulators would push even more financial activity to non-bank players – sometimes called shadow banks – leaving regulators blind to these risks.
The tone of lawmakers’ questions during the three-hour hearing fell mostly along partisan lines, with Democrats more skeptical of the leaders and Republicans inquiring about potential harm to ordinary Americans.
Sen. Sherrod Brown, an Ohio Democrat, opened the event by lambasting banks’ lobbying efforts against the final phase of Basel 3.
“You’re going to say that the crackdown on Wall Street is going to hurt working families, are you really going to claim that?” » said Brown. “The economic devastation of 2008 is what hurt working families, while the uncertainty and unrest caused by the Silicon Valley Bank bankruptcy hurt working families.”