Eight top US banking executives spoke out against proposed new measures tightening capital requirements at a hearing on Capitol Hill recently, according to an Advisor Hub report.
Under a plan by the Federal Reserve, Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, lenders would be required to have additional funds available in case of unexpected losses. Banks with at least $100 billion in assets would have to boost the amount of capital set aside by an estimated 16%. The eight largest banks would be facing an approximately 19% increase, with lenders between $100 billion and $250 billion in assets seeing as little as 5% more.
According to the FDIC, the proposal would increase the strength and resilience of the banking system following the banking turmoil this past March. The increased capital would better reflect underlying risks and increase the consistency of how banks measure their risks, the agency said.
At oversight hearings held by the Senate Banking Committee, chief executives with major banks expressed their opposition to the proposed regulations, saying they would make loans more expensive or less readily available. The group included JPMorgan Chase & Co. CEO Jamie Dimon, Goldman Sachs Group Inc.’s David Solomon, Citigroup Inc. CEO Jane Fraser, James Gorman of Morgan Stanley and Wells Fargo & Co.’s Charlie Scharf. All agreed that the proposal would have a negative effect on first-time homebuyers, retirement savers, farmers and ranchers, and small business owners.
Dimon voiced concern over the overall impact of the proposed rules on many consumers and businesses. “Your local affordable housing, or the Montana pension plan,” he said. “All of these things will trickle through, become more expensive.” Dimon added, “”If enacted as drafted, this proposal will fundamentally alter the U.S. economy in ways that the Federal Reserve has not studied or contemplated.”
The CEOs testified that they would not encounter any issues meeting the new requirements but could also have to charge higher interest rates as a result of not having as much capital available for lending.
Previously, bank groups have also said the proposal would violate the Administrative Procedure Act (APA) because it lacked sufficient public data and economic analysis.
The chairman of the banking committee, Ohio Sen. Sherrod Brown, said banks lobbying against the rules were exaggerating their potential impact to maximize their profits. “The big bank CEOs complained about capital requirements, just like they did with Dodd-Frank protections,” Brown said. “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 changes would implement the final components of the Basel III agreement, also known as the Basel III endgame, the FDIC said. Under the proposal, large banks would begin transitioning to the new framework on July 1, 2025, with full compliance starting July 1, 2028.
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