Proposed capital requirements for banks with more than $100 billion in assets would have trickle-down effects on the rest of the economy, potentially limiting credit access to consumers and businesses and driving customers to unregulated nonbanks, the CEOs of eight of the nation’s largest banks said today. During the Senate Banking Committee’s annual oversight hearing of large banks, the executives warned that the interagency proposal to implement the so-called Basel III endgame would have consequences for consumers that regulators have not fully studied.
“We’re beginning to see some concerning signs in the lower FICO score segment of our customers, and this is unfortunately the very same group that feels any tightening of credit first,” Jane Fraser, CEO of Citigroup, told committee members. “Raising capital requirements by as much as 20% on an industry that all participants believe is well capitalized is a bad idea in any environment, but it becomes even more problematic with economic uncertainty ahead. Almost every element of the Basel III endgame proposal would make lending and other financial activities more expensive, especially for smaller companies and consumers.”
The Basel III endgame was conceived as a common set of international capital standards that would not raise the aggregate amount of capital, but the U.S. proposal does exactly the opposite, Goldman Sachs CEO David Solomon said. “It is significantly more stringent than any other jurisdiction and would increase our capital requirements by about 25%,” he said.
The rule would have “predictable and harmful” outcomes for the economy in ways the Federal Reserve has not studied or shared, JPMorgan Chase CEO Jamie Dimon said. Mortgages and small-business loans would be more expensive and harder to access, particularly for low to moderate-income borrowers, he said. Savings for retirement and college would yield lower returns, and government infrastructure projects would become more expensive. “Ironically, a proposal meant to mitigate risk will actually increase risk,” he said. “This rule will result in increased shift away from regulated markets to less regulated markets.”
Among committee Democrats, Sen. Mark Warner (D-Va.) said he worried about the timing of the proposed capital standards given high interest rates and concerns from the civil rights community about the potential effects on affordable housing. Committee Republicans largely painted the proposal as one of regulatory overreach, noting it comes as banking regulators have proposed new rules on everything from credit card fees to climate risk disclosure. “What we have here, regretfully, is regulators who are in a competition with bureaucrats in other jurisdictions,” Sen. Bill Hagerty (R-Tenn.) said. “They seem to be regulating for regulation’s sake.”