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Wall Street Bank Bosses Warn Congress New Regulations Will Hurt Economy

Wednesday, 06 December 2023 10:15 AM EST

The top bosses of JPMorgan, Morgan Stanley, Goldman Sachs and other major banks warned lawmakers Wednesday that capital hikes and other new regulations being contemplated by U.S. bank regulators will hurt lending, capital markets and the broader economy.

The industry has been waging a fierce campaign to kill the "Basel endgame" proposal, which overhauls how banks must calculate their loss-absorbing capital, and as regulators roll out fair lending and fee cap regulations, among other rules.

The CEOs hope to use the hearing as an opportunity to try to convince key moderate Democratic senators that the Basel rule, which is being led by the Federal Reserve, could stifle lending, hurting small businesses and consumers.

It quickly became a battle of narratives, with many Democrats casting skepticism on the industry's complaints and accusing them of over-emphasizing the risks, while Republicans and the CEOs stressed the potential adverse impact on a range of products and services, from green lending, commodities hedging, and pension plan profits, to U.S. Treasury market liquidity.

"If enacted as drafted, this proposal will fundamentally alter the U.S. economy in ways that the Federal Reserve has not studied or contemplated," Dimon, CEO of the country's largest lender JPMorgan, said in his prepared testimony.

"A lot of loans become unprofitable," Dimon said later, citing solar, wind, middle market and community lending.

The other CEOs appearing are: Bank of America's Brian Moynihan, Wells Fargo's Charles Scharf, Goldman Sachs' David Solomon, Morgan Stanley's James Gorman, State Street's Ronald O'Hanley, and BNY Mellon's Robin Vince.

Gorman emphatically criticized Basel as "wholly unnecessary" and later making "no sense" for an industry already awash in cash and subject to a slew of strict regulations.

Senator Sherrod Brown, the Ohio Democrat who chairs the Committee, quickly criticized the banks for aggressively lobbying against the rules, including with multiple public advertising campaigns and meetings with lawmakers.

Banks have overstated the adverse potential impact of the rules in a bid to preserve their profit margins, he added. When pressed by Brown as to whether all the banks could meet the extra capital required by Basel, all eight indicated they could.

"Absolutely nothing in these rules would stop your banks from making loans to working families," he said. "What your banks want is to maximize quarterly profits, the cost of everything and everyone else be damned," Brown told the CEOs.

Regulators say new rules, including capital hikes, are necessary to protect the banking system from unforeseen shocks, especially following the collapse of Silicon Valley Bank and two other lenders earlier this year.

The Wall Street bosses enjoyed support from some of the Committee's Republicans who generally oppose tight regulations. Senator Tim Scott, the panel's top Republican, echoed bank concerns, saying the proposed rules could have a "devastating impact" on small businesses.

Senator Mike Rounds, a Republican from South Dakota, asked the CEOs if the regulations could hurt homebuyers, farmers, small business owners, prompting all eight to raise their hands.

Big bank CEOs have been appearing before Congress for several years after the 2007-09 financial crisis and subsequent scandals thrust the industry into Washington's crosshairs.

While they rarely result in legislation, hearings have led banks to make changes. In 2021, Dimon was drawn into a fiery exchange with Democratic Senator Elizabeth Warren about overdraft fees, while last year she grilled him over fraud on bank payment network Zelle. Big banks subsequently reduced overdraft fees and expanded Zelle fraud protections.

© 2024 Thomson/Reuters. All rights reserved.

Top bosses of JPMorgan, Morgan Stanley, Goldman Sachs, and other major banks planned on Wednesday to warn lawmakers that capital hikes and other new regulations being contemplated by U.S. bank regulators will hurt credit markets and the broader economy.
wall street, banks, regulations, banking system, congress, economy
Wednesday, 06 December 2023 10:15 AM
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