New proposed banking industry regulations could hamper the economy just as the nation is trying to steer clear of a recession.
So said several chief executive officers of the country’s largest banks in testimony before the Senate Banking Committee.
Central to the bankers’ concerns: a feeling that Washington regulators are out to get them.
The biggest complaint was heard in response to what is known as the Basel Endgame proposal, which is designed to increase the federal regulation, supervision, and risk management of banks.
If actually made reality, the proposal, said Jamie Dimon, chief executive officer of JP Morgan Chase, “would have predictable and harmful outcomes to the economy, markets, businesses of all sizes, and American households.”
Dimon further warned that unless altered, the Basel Endgame proposal will increase capital requirements on the banks by at least 25%.
“Mortgages and business loans will be more expensive and harder to access, particularly for low-to-moderate income borrowers,” Dimon continued. “Savings for retirement or college will yield lower returns as costs rise for asset managers, money-market funds, and pension funds.”
Jane Fraser, chief executive officer of Citigroup, remarked that the proposal could negatively impact “the cost of borrowing for farmers in rural communities.”
“It could impact them in terms of their mortgages, it could impact their credit cards. It could also importantly impact their cost of any borrowing that they do.”
The law of unintended consequences was also raised during the hearings when it was suggested that a federal tightening of banking regulations could lead to the growth of what are known as “shadow banks,” mortgage lenders and hedge funds, among other sources, that are substantially less regulated than the average bank.
In announcing the proposed new regulations, the Federal Reserve said the changes would have the effect of curtailing operational risk. They would also require a higher level of capital for banks as a means of decreasing possible losses.
With the comment period for the proposed regulations ending last week, it is currently expected that the largest banks in the country will be required to transition to the new framework by no later than July 1, 2025.
By Garry Boulard