Under Questioning from U.S. Senator Katie Britt, Top Bank CEOs Confirm Basel III Endgame Proposal Would Harm Community Financial Institutions, Put U.S. at Global Disadvantage
WASHINGTON, D.C., December 7, 2023 – U.S. Senator Katie Britt (R-Ala.) yesterday participated in a Banking, Housing, and Urban Affairs Committee hearing that featured testimony from the CEOs of the eight globally systemic banks (G-SIBs) in the United States. The witnesses were: Charles Scharf of Wells Fargo, Brian Moynihan of Bank of America, Jamie Dimon of JPMorgan Chase, Jane Fraser of Citigroup, Ronald Hanley of State Street, Robin Vince of BNY Mellon, David Solomon of Goldman Sachs, and James Gorman of Morgan Stanley.
Senator Britt began her line of questioning by asking Wells Fargo’s CEO whether the Basel III Endgame proposed rule, recently issued jointly by three federal banking regulators, would affect lending at rural bank branches, especially given that over 42% of residents in Alabama live in rural areas.
In contrast to the statement made last month by Vice Chair for Supervision of the Federal Reserve Michael Barr that he believed the proposed rule would have a “minimal impact on lending,” Mr. Scharf stated that Wells Fargo would be issuing a comment to the Federal Reserve concerning this rule and agreed with Senator Britt that the “availability of credit and pricing of credit in the marketplace” would be affected.
Mr. Moynihan, Chairman and CEO of Bank of America, also concurred, noting that raising capital requirements would have “much more of an impact than people think.” When asked by Senator Britt, every witness testified to the fact that the Basel III proposal would not just affect financial institutions over $100 billion in assets, and that the impact would trickle down to community banks and local credit unions, as well as small businesses and individuals across Alabama.
Finally, Mrs. Fraser, CEO of Citigroup, affirmed that, if implemented, the Basel III Endgame proposed rule would put American financial institutions and companies at a global competitive disadvantage.
A transcript follows:
BRITT: Thank you, Mr. Chairman.
It’s a pleasure to be with all of you today. Thank you so much for carving out time for this.
Over the last year, we have seen a host of incredibly complex and market-altering rules come out of nearly every financial federal agency. Interestingly, five of our top financial regulators sat before this very committee last month and unanimously told me that they believed the U.S. banking system to be strong, while at the same time, they argued for proposals that could fundamentally weaken it without providing any adequate answer to the question, ‘Why?’
You’ve seen actions and we’ve seen them here from the Federal Reserve, the FDIC, the OCC, CFPB, and the SEC, many of which seem to go far beyond the bounds of their authority.
Equally as concerning is the apparent lack of initiative by these regulators to understand both the quantitative and cumulative impacts of all of these rulemakings. For example, focusing on the Basel III proposal.
In this Committee, just a few weeks ago, Vice Chair Barr said the rule will have a, quote, ‘minimal impact on lending that banks do,’ end quote.
Now, I’d like to say, Mr. Scharf, most heard you earlier when I was watching say that you have the most rural branches of all the banks represented here. And my question is can you briefly respond to that? Would this proposal only have a minimal impact on Wells Fargo’s lending?
SCHARF: Well Senator, we are going to be commenting to the Federal Reserve. We do think there are a series of asset classes, when you look at the increases in capital that are proposed, [that] would affect both the availability of credit and the pricing of credit in the marketplace.
And additionally, as we’ve seen in other asset classes, when regulation like this has taken hold, you can see substantial migration outside of the regulated banking system.
BRITT: Absolutely. Thank you.
At the end of the day, the G-SIBs play a vital role in the U.S. economy, and I don’t want to diminish that. However, I do want to focus on downstream. So, impacts on, let’s say Alabama smaller financial institutions, small businesses across the country, those in manufacturing and energy sectors, individuals seeking maybe a short-term liquidity, to help pay their bills. I think the list of these potentially impacted goes on and on and on and on.
And on this point, your banks have said that by raising capital requirements by nearly 20 percent, the proposal would ultimately limit access to capital across the board and undermine economic growth.
Mr. Moynihan, can you briefly explain this trickle-down effect and if your banks are squeezed by the requirements of this rule, what does this ultimately mean for maybe small business owners seeking a loan, a first-time home buyer, or a small financial institution in, let’s say, Alabama?
MOYNIHAN: Thank you, Senator. As Mr. Scharf said, and we talked about a lot today, if you have the same capital requirements increase by 20 percent to do the exact same activities you did yesterday, you have to get a higher return, and that higher return will be borne by the customer base, or you’ll have to leave the business. And either one of those is not good for the customer base and it applies across the board.
In fact, the idea that this doesn’t trickle down through the banking system, overall, we provide services to a lot of those smaller banks, and those costs of those services will go up to them. And, so it has much more of an impact than people think.
BRITT: Right. And just quickly, I know I’m running out of time. I’d love an answer from all of you. Would it be an inaccurate statement for regulators to assume that under this threshold, those under the hundred-billion-dollar asset mark, they have said, you know, they won’t feel the impacts of this.
So, my question for you is, will those institutions and people and things that I just mentioned under the hundred-billion-dollar [asset] mark, that are quote, “not affected by this,” will they feel the impacts of Basel III? Just if we can ‘yes’ or ‘no’ down the line.
Mr. Scharf, we’ll start with you.
SCHARF: Ultimately, yes.
MOYNIHAN: (Witness nods head in affirmative)
DIMON: Absolutely. You provide a lot of services.
FRASER: Yes. The trickledown effect is real.
HANLEY: Yes. It’s an integrated system.
VINCE: Yes, Senator, that’s likely.
SOLOMON: Yes, I agree.
GORMAN: Yes.
BRITT: And last but not least, if this rule is implemented as written, do we risk putting the United States banking sector at a global competitive disadvantage? Mrs. Fraser, do you mind answering that?
FRASER: Yes, we will. We already have an unlevel playing field with the European banks. The American banks play incredibly important role globally in the financial system and ultimately affect the competitiveness of American companies. This is important.
A video of Senator Britt’s line of questioning can be viewed here.
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High quality video of Senator Britt’s line of questioning can be downloaded for media usage here.
