Cybersecurity and the slowing of the global economy are two key issues of concern, the CEOs of the nation’s largest banks told the House Financial Services Committee today. Noting that “cyber risk is probably the biggest risk the financial system faces,” according to JPMorgan Chase Chairman and CEO Jamie Dimon, the CEOs called for greater collaboration and information sharing between banks and regulators to counter the growing threat of cyber-related crime. The bankers highlighted the significant investments their firms have made in cybersecurity, with Dimon noting that JPMorgan alone spends $600 million annually on cyber defenses.
During the almost seven-hour hearing, the CEOs also discussed changes their banks have made since the financial crisis that have increased the safety and soundness of both their individual firms and the financial sector. Morgan Stanley Chairman and CEO James Gorman noted, for example, that his firm has “doubled the capital, tripled the liquidity, cut the leverage by 75 percent, put in place a living will/orderly resolution, passed the annual CCAR stress test and fundamentally changed the organization” with respect to risk limits.
The CEOs urged policymakers to consider risks to the financial system stemming from outside the regulated banking sector. Dimon also expressed concern about the pending Current Expected Credit Loss accounting rules change and the negative impact it could have especially on smaller banks. “I do think it would put smaller banks in a position that when a crisis hits, they will virtually have to stop lending, because putting up those reserves would be too much at precisely the wrong time,” he said.
Turning to potential improvements that could be made to the post-crisis regulatory framework, the CEOs agreed on the need for greater harmonization of regulation among domestic and international agencies. They also noted that further recalibrations could be made to the capital and liquidity framework to allow banks to better serve their customers without compromising safety and soundness.