2023-12-07 13:21:00
© Reuters
By Pete Schroeder and Michelle Price and Lananh Nguyen
WASHINGTON (Reuters) – The presidents of the largest U.S. banks, JPMorgan (NYSE:), Morgan Stanley (NYSE:), Goldman Sachs (NYSE:) and other important financial institutions in the country warned on Wednesday during a Senate hearing North American that increased capital requirements and other new rules will hurt credit and the economy.
The banking industry has been waging a fierce campaign to eliminate the “Basel endgame” proposal, which reshapes how banks should calculate their loss reserve capital, and as regulators implement rules on fair lending and interest rate caps, among other rules.
Bank presidents hoped to use the hearing as an opportunity to convince moderate Democratic senators that the Basel rule, which is being led by the Federal Reserve, could stifle lending, hurting small businesses and consumers.
The meeting quickly became a battle of narratives, with many Democrats casting skepticism over the industry’s complaints and accusing them of overemphasizing the risks, while Republicans and bank leaders emphasized the possible adverse impact on a range of products and services ranging from green loans, commodity hedging and pension plan services to Treasury market liquidity.
“If enacted as written, this proposal will fundamentally alter the U.S. economy in ways that the Federal Reserve has neither studied nor contemplated,” said Jamie Dimon, chief executive of the nation’s largest bank, JPMorgan, in his prepared testimony.
“Many loans become unprofitable,” Dimon said later, citing financing for solar, wind and community energy.
Still, the hearing, which has become an annual event in Washington, was much less contentious than in previous years, with moments of lightness and humor. Even Democratic Senator Elizabeth Warren, who in the past has criticized Wall Street bosses on issues such as payment fraud and overdraft interest, has taken a soft stance.
Other bank presidents who attended were: Brian Moynihan of Bank of America (NYSE:), Charles Scharf of Wells Fargo (NYSE:), David Solomon of Goldman Sachs, James Gorman of Morgan Stanley, Ronald O. ‘Hanley of State Street and Robin Vince of BNY Mellon.
Gorman strongly criticized the proposed rule as “utterly unnecessary” and, later, as “nonsense” for an industry already awash in cash and subject to a series of stringent regulations.
Senator Sherrod Brown, an Ohio Democrat who chairs the committee, criticized the banks for aggressively lobbying against the rules, including with several public advertising campaigns.
Banks exaggerated the potential adverse impact of the rules in a bid to preserve their profit margins, he added. When pressed by Brown whether all banks could meet the extra capital required by the rule, all eight indicated yes.
“What your banks want is to maximize quarterly profits, cost of everything and everyone else be damned,” Brown told the executives.
Regulators say the capital increases are necessary to protect the banking system from unforeseen shocks, especially after the collapse of Silicon Valley Bank and two other regional banks earlier this year.
“Big bank CEOs have complained about capital requirements, just as they did about Dodd-Frank protections,” Brown wrote in a statement after the hearing. “Strict rules like capital requirements protect workers, taxpayers and our economy by preventing big banks from taking excessive risks without the capital needed to avoid financial crises and bailouts.”
The Wall Street bosses were supported by the committee’s Republicans, who generally oppose strict regulations. Sen. Tim Scott, the panel’s top Republican, echoed banks’ concerns, saying the proposed rules could have a “devastating impact” on small businesses.
Sen. Mike Rounds, R-South Dakota, asked the executives whether the regulations could hurt homebuyers, farmers and small business owners, prompting all eight to raise their hands.
Big bank presidents have been appearing before Congress for several years after the 2007-2009 financial crisis and subsequent scandals put the sector in Washington’s crosshairs.
While they rarely result in legislation, the hearings have prompted banks to make changes. In 2021, Dimon was drawn into a heated argument with Warren over overdraft interest, while last year she questioned him about fraud on the banking payments network Zelle. Large banks subsequently reduced overdraft interest and expanded fraud protections on Zelle.
This year, however, instead of attacking executives, Warren has enlisted them in her attempt to crack down on the cryptocurrency sector. She is promoting a bill that would extend existing anti-money laundering banking rules to the digital currency sector. When asked if the executives supported the goal of their bill, they all enthusiastically said yes.
“I don’t usually walk hand in hand with the presidents of multibillion-dollar banks, but this is a matter of national security. Terrorists, drug traffickers and rogue nations must be prevented from using cryptocurrencies for their dangerous activities,” he said.
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