AT A Capitol Hill meeting designed to hold bank leaders accountable, some of Wall Street’s top brass will instead air their own complaints.

The heads of the biggest US banks will use the hearing on Wednesday (Dec 6) to make their case for watering down rule proposals they argue will harm the economy. The regulations, which were unveiled in July by the Federal Reserve and other regulators, have sparked partisan bickering and a major lobbying campaign.

Republicans in Congress, including many on the Senate Banking Committee, have taken up industry arguments that the plans to increase the capital large lenders need to set aside represent an overreach by Biden administration regulators. Meanwhile, Democrats on the panel have argued the regulatory overhaul is needed to thwart dangers lurking in the system.

The divide will be on full display on Wednesday when bank CEOs will publicly appeal to lawmakers with their plight. JPMorgan Chase & Co chief executive officer Jamie Dimon plans to say the rules will drive up interest rates for some first-time homebuyers as well as underserved and low-to-moderate-income borrowers. The biggest bank’s CEO will join Morgan Stanley’s James Gorman and Goldman Sachs Group’s David Solomon in arguing the plans will push riskier lending further outside regulator purview.

“This rule will make services so uneconomical, you will likely see two outcomes: many banks will simply stop offering certain products and services, and those that do will have to charge more for them just to make it worth the service,” Dimon said in prepared remarks.

Public opinion

Wall Street’s top brass have made these arguments over and over again, but their efforts have taken a new tone lately as they try even to sway public opinion. One non-profit group, Center Forward, ran a spot during an NFL game while the financial press is brimming with ads proclaiming the damage the proposals will do. Goldman Sachs has been peppering participants in a small-business programme it runs with e-mails urging them to help oppose the rules.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Ahead of the Senate hearing on banking oversight scheduled for Wednesday morning, Dimon submitted testimony saying that banks will be limited in deploying capital when it’s most needed if the rules go through as planned. Goldman’s Solomon argued in prepared remarks that the proposals could hurt the competitiveness of US capital markets and drive up the costs of providing credit to its clients from manufacturers and food producers to pension funds.

The rules will also push more lending activity into the non-bank sector, according to Solomon.

“As more activity moves into parts of the market that regulators have far less visibility into, we could see a buildup of risks that could ultimately lead to financial shocks,” Solomon plans to say.

Dimon notes that in just the last few years, his bank has seen at least 50 loans of US$1 billion or more go to private markets, when they would traditionally have been made by large banks. That increases the likelihood that “risks go unseen”, he said in his remarks.

The financial world has been in a heated debate over the US proposals tied to what’s called the Basel III Endgame – an international overhaul initiated more than a decade ago in response to the financial crisis of 2008.

Excess capital

If approved by US watchdogs, the rules would require big banks to increase their capital cushion by almost 20 per cent to ensure they can survive another crunch. The Federal Reserve and other regulators say the changes can help avoid turmoil such as this year’s meltdowns of midsize banks.

Bankers note that under various rules implemented in recent years, they must already hold twice as much in reserve as they did before the financial crisis. They are now sitting on US$145 billion in excess capital, which they would not be able to use under the new rules, according to Bloomberg Intelligence.

“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 comments. BLOOMBERG