Wall Street bank bosses warn lawmakers of economic toll from new rules

Dec 7, 2023

By Pete Schroeder, Michelle Price and Lananh Nguyen

WASHINGTON (Reuters) -The top bosses of JPMorgan, Morgan Stanley, Goldman Sachs and other major banks warned on Wednesday that capital hikes and other new rules will hurt lending and the economy during a Senate hearing that was otherwise sedate compared with recent years.

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 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.

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 services, to 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,” Jamie 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, and community lending.

Still, the hearing, which has become an annual Washington event, was far less contentious than in previous years, with moments of levity and humor. Even Democratic Senator Elizabeth Warren, who in the past has skewered Wall Street bosses on issues including payment fraud and overdraft fees, took a soft line.

The other CEOs appearing were: 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 as 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, criticized the banks for aggressively lobbying against the rules, including with multiple public advertising campaigns.

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.

“What your banks want is to maximize quarterly profits, the cost of everything and everyone else be damned,” Brown told the CEOs.

Regulators say 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 big bank CEOs complained about capital requirements, just like they did with Dodd-Frank protections,” Brown wrote in a statement after the hearing. “Strong rules, like capital requirements, protect workers, taxpayers, and our economy by preventing big banks from taking on too much risk without the capital necessary to prevent financial crises and bailouts.”

The Wall Street bosses were supported by 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, and small business owners, prompting all eight to raise their hands.

NO FIREWORKS

Other issues covered included cannabis banking, fair lending, payments, mortgages, and artificial intelligence and cryptocurrency regulations.

Big bank CEOs have been appearing before Congress for several years after the 2007-2009 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 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.

This year, however, there were no fireworks. Instead of attacking the CEOs, Warren enlisted them in her bid to crackdown on the cryptocurrency industry. She is pushing a bill that would extend existing bank anti-money laundering rules to the crypto industry. When asked if the CEOs supported the aim of her bill, they all enthusiastically said they did.

“I’m not usually holding hands with the CEOs of multi-billion dollar banks, but this is a matter of national security. Terrorists, drug traffickers and rogue nations should be barred from using crypto for their dangerous activities,” she said.

(Writing by Michelle Price; additional reporting by Chibuike Oguh; Editing by David Gregorio, Nick Zieminski and Chris Reese)

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