Tougher Regulation Worries Big US Banks

by Warren Seah


Chief executives from eight of the largest U.S. banks are expected to express concerns to federal lawmakers about the potential repercussions of tighter regulatory measures on the economy. The banking industry, heavily scrutinized since the financial crisis of 2007-09, has frequently been summoned before the Senate Banking Committee to discuss relevant issues. In focus this year is the Basel III Endgame proposal, which calls for increased capital reserves to mitigate potential losses.

Ramped-up Pressure on Banks

While the Basel III framework has been in development for several years, lawmakers and regulators have intensified their efforts in recent months, particularly after Silicon Valley Bank’s collapse earlier this year. In response, the largest banks, known as global systemically important banks (GSIBs), are expected to defend their stability during market turbulence and challenge the need for additional requirements.

GSIBs: Facilitating Stability and Economic Growth

Kevin Fromer, CEO of Financial Services Forum, an advocacy group representing the eight largest banks, asserts that GSIBs have played a crucial role during the COVID-19 pandemic and the banking turmoil of 2023. They have not only provided financial support to consumers and businesses of all sizes but have also deposited billions into First Republic Bank to prevent contagion within the industry.

With the upcoming testimony, the banking industry seeks to ensure that new regulations do not jeopardize their stability and hinder their ability to contribute to economic growth.

CEO’s of Major Banks to Represent at Senate Hearing

The CEOs of several major banks, also known as GSIBs, are set to appear before the Senate on Wednesday. The prominent figures include Jamie Dimon from JPMorgan Chase, Brian Moynihan from Bank of America, Jane Fraser from Citigroup, Charles Scharf from Wells Fargo, David Solomon from Goldman Sachs, James Gorman from Morgan Stanley, Ronald O’Hanley from State Street, and Robin Vince from BNY Mellon.

In preparation for the hearing, each CEO has submitted statements totaling a collective 103 pages. These statements emphasize the strength and significance of the banking industry to the U.S. economy.

Jamie Dimon, leading the largest U.S. bank in terms of assets, has voiced strong opposition to the Basel III proposal. He asserts that there is no evidence to suggest that large banks are undercapitalized. Dimon also warns that the new rules may escalate capital requirements for these banks by up to 25%, which could limit their ability to lend to households and businesses. Such limitations could have a detrimental ripple effect on the economy.

Dimon states, “This rule will render many banking services uneconomical. We can expect two outcomes: banks will either cease offering certain products and services altogether, or they will have to increase prices to compensate.”

While the primary focus of Wednesday’s proceedings is anticipated to be the Basel III proposal, it is also expected that consumer-related issues such as credit card late fees and swipe fees will be addressed.

The Senate hearing will commence at 9:30 a.m. ET and will be attended by notable committee members including Senators Sherrod Brown (D., Ohio), Tim Scott (R., S.C.), Elizabeth Warren (D., Mass.), and Mike Crapo (R., Idaho).

You may also like

Leave a Comment