Wall Street bankers tell Senate they oppose new increased capital regulation

Dec. 6 (UPI) -- Wall Street bankers at Wednesday's Senate Banking Oversight Committee hearing on the stability of the U.S. banking system warned of a recession and were were united in their opposition to stricter capitalization regulations, while committee chair Sen. Sherrod Brown, D-Ohio, supported the proposed new rules.

CEOs of Wells Fargo, Bank of America, JP Morgan Chase, Citigroup, Morgan Stanley, Goldman Sachs, BNY Mellon and State Street argued against proposed higher capital requirements from the Federal Reserve.

"It has much more impact than people think," Bank of America CEO Brian Moynihan said during the hearing "If you have the same capital requirements increase by 20%, to do the exact same activities that you did yesterday, you have to get a higher return. That higher return will be borne by the customer base, or you'll have to leave the business. Either one of those is not good for the customer base."

Senate banking committee chair Sen. Sherrod Brown, D-Ohio, denounced the Wall Street banks for opposing requirements that they maintain more capital to be sure the banks are resilient in crisis.

"Wall Street banks are actually saying that cracking down on them will, quote, 'hurt working families,'" Brown said at the hearing. "The economic devastation of 2008 hurt working families. The uncertainty and turmoil from the failure of Silicon Valley Bank hurt working families - when small businesses and their employees in Ohio and Utah and across the country didn't know if they could get access to their money and make payroll."

He said before the hearing that his committee is committed to always put the Main Street economy at the center of what it does and it's the committee's job to hold Wall Street banks accountable.

"Despite zero evidence that large U.S. banks are undercapitalized today, the proposed Basel III Endgame rule, if enacted, would unjustifiably and unnecessarily increase capital requirements by 20-25% for the largest banks. Banks would be limited in their ability to deploy capital in the times we're most needed, and the rule will have a harmful ripple effect on the economy, markets, businesses of all sizes and American households," Dimon said in his prepared statement."

Citigroup CEO Jane Fraser said she sees a recession coming, but doesn't think that a drastic downturn is "on the horizon."

For the most part the hearing lacked intense exchanges. Sen. Elizabeth Warren, a frequent critic of big banks who supports stronger regulation, even found common ground agreement on crypto currency.

All the bank CEO's agreed with her that crypto companies should have to follow the same money-laundering regulations that banks follow.

Republican Senator Mike Rounds of South Dakota opposed the proposed increased capital requirements as he asked the bankers what damage they thought it would do to the economy.

He posed a series of questions, asking the bankers to raise their hands if they agreed with his assessments that the higher capital requirements would hurt first-time home buyers and those saving for retirement. The bankers indicated they agreed.

They also agreed with Rounds that the capital rules would negatively impact small business owners, farmers and ranchers.

Goldman Sachs CEO David Solomon, in response to a Rounds question about the national debt harming the economy, said he believed it hampers banks' ability to invest because the federal governments debt burden impacts the government ability to finance it.

Bankers who testified at the hearing are JP Morgan Chase's Jamie Dimon with annual compensation of $34.9 million, Morgan Stanley's James P. Gorman at $39.4 million, Goldman Sachs CEO David Solomon with $31.6 million annual compensation, Citigroup's Jane Fraser at $22 million, Bank of America's Brian Thomas Moynihan with $30.1 million a year, Wells Fargo CEO Charles W. Scharf at $24.6 million, BNY Mellon's Robin Vince with $11.2 million and State Street's Ronald O' Hanley with $3.8 million.

Those financial institutions have a combined $14.8 trillion in assets, $8 trillion in deposits and $34.7 billion in total stock buybacks.

The committee highlighted some of the fines and settlements for bank misconduct, including Bank of America's $1.2 billion in penalties and settlements in 2022, Chase's $290 million settlement with victims of the late billionaire Jeffrey Epstein, Citigroup's $25.9 million fine for discrimination against Armenian Americans, and three claims that Wells Fargo allegedly tried to intimidate union organizers.

The bank CEOs at the senate hearing asserted that the banking system is solid.

Goldman Sachs CEO David Solomon said the additional capital requirements proposal from the Fed would have a "particularly negative impact to capital markets functioning."

He said the new proposed capital rules mean that "banks will need to hold capital twice for the exact same risks associated with market activities."

The Basel III bank capitalization rules emerged from the 2007-2009 global financial crisis.

The latest proposal to raise capital requirements followed the regional bank collapses of Silicon Valley bank and Signature Bank earlier this year.

The Fed said in the case of Silicon Valley Bank's collapse it was a "textbook case of mismanagement."

The Wall Street bank CEOs today say despite those regional collapses, the banking system is strong. The assert that increasing the capital requirements is unnecessary.