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Wall Street CEOs to Congress: Capital Hikes and Regulations Threaten Economy

Top executives from major Wall Street banks, including JPMorgan, Morgan Stanley, and Citigroup, are set to deliver a stern warning to lawmakers about the potential economic fallout from proposed capital hikes and new regulations. According to prepared congressional testimony published on Tuesday, the CEOs of the country’s eight largest banks will address the Senate Banking Committee on Wednesday.

Opposition to Basel Endgame Proposal

The focal point of their concern is the “Basel Endgame” proposal, a comprehensive overhaul of how banks calculate their loss-absorbing capital. The CEOs argue that this initiative, led by bank regulators and spearheaded by the U.S. Federal Reserve, could unreasonably increase capital requirements for the largest banks by 20% to 25%. JPMorgan CEO Dimon warns that such a move could force banks to charge more for services or even cease offering them altogether.

Unintended Consequences on the U.S. Economy

Dimon emphasizes in his prepared testimony that if the Basel rule is enacted in its current form, it will fundamentally alter the U.S. economy in ways that have not been adequately studied or contemplated by the Federal Reserve. The CEOs express concerns about the potential ripple effects on various economic sectors.

Critique of New Consumer Regulations

In addition to their opposition to the Basel Endgame, the CEOs criticize new consumer regulations, asserting that they lack a rigorous economic analysis. Dimon particularly notes the “alarming” absence of thorough examination in these regulatory changes.

Defending Against Bank Failures

Regulators argue that these rules, including capital hikes, are essential safeguards to protect the banking system from unforeseen shocks, especially in the wake of three bank collapses earlier this year. However, Citigroup’s Fraser urges caution, emphasizing that isolated bank failures should not lead to inadvertently upending the entire financial system.

CEO Perspective on Regulations

The CEOs, including Brian Moynihan (Bank of America), David Solomon (Goldman Sachs), and others, see the hearing as an opportunity to persuade key moderate Democratic senators that the proposed rules could stifle lending, potentially harming small businesses and consumers. James Gorman (Morgan Stanley) contends that the Basel rules are “wholly unnecessary” and could harm the competitiveness of the U.S. economy.

Confidence Amid Regulatory Scrutiny

Wells Fargo CEO Charlie Scharf expresses confidence in the bank’s ability to address regulatory concerns, indicating a commitment to resolving issues related to a previous fake accounts scandal. Scharf is optimistic that the bank’s management has the experience to navigate these challenges, allowing regulators to consider lifting the asset cap that currently restricts the bank from growing.

In conclusion, the forthcoming Senate Banking Committee hearing provides a platform for Wall Street CEOs to voice their concerns and arguments against proposed regulations, with a focus on the potential economic consequences and the necessity of a thorough economic analysis in regulatory decision-making.

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