Bank chiefs on Capitol Hill tee off on proposal to raise capital requirements

Leaders from eight of the nation's largest banks on Dec. 6 criticized a proposal from U.S. financial regulators to raise bank capital requirements, asserting the plan would hurt small businesses and American consumers.

"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," said Jamie Dimon, chairman and CEO of J.P. Morgan Chase & Co., during testimony before the Senate Banking Committee. "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."

The Basel III Endgame proposal was unveiled in July by the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

Broadly, the proposal would bolster the capital requirements for banking organizations with $100 billion or more in total consolidated assets and their depository institutions, as well as firms with significant trading activities.

The seven other bank leaders who testified Dec. 6 — Charles W. Scharf of Wells Fargo & Co.; Brian Moynihan of Bank of America; Jane Fraser of Citigroup; Ronald O'Hanley of State Street; Robin Vince of BNY Mellon; David Solomon of Goldman Sachs; and James Gorman of Morgan Stanley — also raised concerns about Basel III.

As far as elected representatives, the Banking Committee's leaders feel differently about the proposal.

Chair Sherrod Brown, D-Ohio, said he wasn't buying the bank leaders' claims that the raising capital requirements would hurt everyday Americans.

"Your game is to try to confuse people," Brown said. "Most Americans probably think of a bank's capital — if you force people to think about it at all — as money stashed away in a vault. But that's not what it means. Capital is just a way to fund loans and investments and risky activities in a way that can absorb losses if things go south. It means shareholders and investors are on the hook — not taxpayers."

Brown pointed to the Great Financial Crisis in 2008 and the collapse of Silicon Valley Bank earlier this year as reasons why standards should be raised.

But Sen. Tim Scott, R-S.C., the committee's ranking member, disagreed.

The proposal is "simply requiring more capital on the sidelines, which then means fewer dollars to lend to small businesses, first-time homebuyers, car loans," Scott said. "So the actual impact of a higher regulatory standard is fewer dollars to lend to Americans who need desperately to be engaged in the process of achieving the American Dream that is typically defined by having access to capital."

The Basel III comment period ended Nov. 30 as regulators work on crafting a final rule.