The CEOs of major U.S. banks testify during a Senate committee hearing in Washington, on Dec. 6.Alex Brandon/The Associated Press
The top bosses of JPMorgan Chase & Co. Chase and Company JPM-N, Morgan Stanley MS-N, Goldman Sachs Group GS-N 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 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 overemphasizing 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,” James Dimon, CEO of the country’s largest lender JPMorgan Chase & Co., said in his prepared testimony.
“A lot of loans become unprofitable,” Mr. 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 good humour. 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 Corp.’s BAC-N Brian Moynihan, Wells Fargo and Company’s WFC-N Charles Scharf, Goldman Sachs’s David Solomon, Morgan Stanley’s James Gorman, State Street Corp.’s Ronald O’Hanley, and BNY Mellon’s Robin Vince.
Mr. 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, quickly 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 Mr. 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,” Mr. 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 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.
Other issues covered included cannabis banking, fair lending, payments, mortgages, artificial intelligence and cryptocurrency regulations.
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, Mr. Dimon was drawn into a fiery exchange with Ms. 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, Ms. 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 multibillion-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.