In an annual Senate oversight hearing, CEOs of eight major Wall Street banks expressed concerns and pushed back against proposed regulations aimed at increasing the levels of capital they are required to hold against potential risks. The proposed changes, known as the Basel 3 endgame, were introduced by U.S. regulators in July and include higher standards for banks.
The CEOs, including Jamie Dimon of JPMorgan Chase, warned lawmakers about the potential negative impacts of the regulations. Dimon claimed that if unchanged, the rules would increase capital requirements on the largest banks by approximately 25%, potentially harming the economy, markets, businesses of all sizes, and American households.
The proposed regulations would affect all U.S. banks with at least $100 billion in assets and are scheduled to be fully phased in by 2028. The banking industry is concerned that higher capital requirements could impact profitability and growth prospects. The CEOs argued that this could lead to unintended consequences, affecting small business owners, mortgage customers, pensions, other investors, and rural and low-income customers.
Dimon highlighted potential consequences, such as mortgages and small business loans becoming more expensive and harder to access, lower returns on savings for retirement or college, increased costs for government infrastructure projects, and higher consumer costs for commodities due to increased hedging expenses.
The CEOs also warned that heightened oversight on banks could lead to a shift of financial activity to nonbank players, often referred to as shadow banks, leaving regulators unaware of potential risks. Lawmakers’ questions during the hearing were generally divided along partisan lines, with Democrats expressing skepticism about the executives’ concerns, while Republicans inquired about potential harms to everyday Americans. Senator Sherrod Brown, an Ohio Democrat, criticised the banks’ lobbying efforts against the Basel 3 endgame, emphasising the economic devastation of 2008 and the need for stronger regulatory measures.