Capital hikes and new regulations threaten the economy, say top bank executives
The CEOs of major Wall Street banks, including JPMorgan, Morgan Stanley, Citigroup, and others, are set to testify before the Senate Banking Committee on Wednesday. In their prepared testimonies, the executives express concerns over proposed capital hikes and new regulations, arguing that they will have a detrimental impact on the economy.
Industry Campaign to Stop “Basel Endgame” Proposal
The CEOs will address their opposition to the “Basel Endgame” proposal, which aims to revamp how banks calculate their loss-absorbing capital. Led by the U.S. Federal Reserve, regulators are drafting this rule that would require the largest banks to increase their capital requirements by 20% to 25%. Jamie Dimon, CEO of JPMorgan, warns that such a move would force banks to charge higher fees or cease offering certain services altogether.
Unforeseen Consequences and Lack of Economic Analysis
The proposed regulations, including capital hikes and other consumer rules, have raised concerns among the CEOs. Dimon further highlights the “alarming” shortage of rigorous economic analysis behind these regulations. While regulators argue that these rules are necessary to protect against future banking system shocks, Dimon questions the potential impact on the U.S. economy.
Preserving Financial System Stability
Citigroup CEO, Jane Fraser, urges caution in response to isolated bank failures, warning against inadvertently destabilizing the U.S. financial system. The CEOs of Bank of America, Wells Fargo, Goldman Sachs, Morgan Stanley, State Street, and BNY Mellon will also participate in the hearing.
Convincing Senators of Potential Consequences
The hearing provides an opportunity for the CEOs to persuade moderate Democratic senators about the potential negative effects of these regulations. They argue that lending could be stifled, impacting small businesses and consumers. James Gorman of Morgan Stanley claims that the Basel rules are unnecessary and harm the competitiveness of the U.S. economy.
Addressing Regulatory Issues at Wells Fargo
Charlie Scharf, CEO of Wells Fargo, expresses confidence in the bank’s management to address risk, control, and regulatory issues. He hopes that with the resolution of these issues, regulators will consider lifting the asset cap that currently limits the bank’s growth. Wells Fargo is still operating under consent orders due to a previous fake accounts scandal.
As the CEOs make their case before lawmakers, the fate of these proposed regulations hangs in the balance, with potential ramifications for the economy and the banking industry as a whole.