Wall Street’s most powerful banking executives warned Congress that new regulations on the industry proposed by the Biden administration risk hurting the US economy.
On the eve of an election year, with the threat of recession looming large, the bosses of JPMorgan Chase, Citigroup, Goldman Sachs and five other large firms urged policymakers to “be thoughtful” about the impact of the rules.
Appearing before the Senate banking committee, however, they were rebuked by its chairman. “Anyone who had any doubt whether Wall Street could be trusted to use its power responsibly need only to look at the current lobbying fight on this,” the Democratic senator Sherrod Brown said.
“You have even gone national: pouring money into ads for Sunday Night Football. It is a campaign waged by your lobbyists to prevent financial watchdogs from putting in place capital requirements to protect our banking system and our economy.
“That’s why people hate Wall Street. That’s why people hate Washington because these lobbying campaigns that you engage in usually work.”
The executives nevertheless cautioned against the the imposition of more onerous regulations, including new rules from the Federal Reserve that would require large banks to hold additional capital on their balance sheets.
They claim that the measures – known as the Basel Endgame – would hurt lending and bank balance sheets at a time when the banking industry requires more flexibility, and the economy needs support.
Jane Fraser, chief executive of Citigroup, said: “Almost every element of the Basel III Endgame proposal would make lending and other financial activities more expensive, especially for smaller companies and consumers.”
Jamie Dimon, chief executive of JPMorgan Chase, argued the proposed rules “were not thoughtfully done and should be relooked at”.
The debate around rulemaking “should not only be about more or less regulation, but about the right regulation to keep the American banking system the best in the world”, he said, urging lawmakers and regulators to carefully consider “the effect of arbitrary and unstudied regulatory proposals and their cumulative impact on the economy”.
David Solomon, chief executive of Goldman Sachs, claimed the Basel capital rule “would quadruple our capital requirements for clean energy tax equity projects, and would increase our capital eight times for important transactions that we enter into with pension funds to improve their returns for retirees”.
James Gorman, chief executive of Morgan Stanley, said: “I’ve been at this for a long time. I’ve sat on the board of the New York Federal Reserve. I’ve seen a lot of rules, and [this proposal] just doesn’t make sense.”
This year has been a tough one for the banking industry, as high interest rates have caused banks and consumers to seek fewer loans and consumers are facing financial pressure from inflation.
Three larger banks failed this year – Signature Bank, Silicon Valley Bank and First Republic Bank – after the banks experienced a run on deposits and questions about the health of their balance sheets.
Associated Press and Reuters contributed reporting