CEOs Speak Out Against Capital Requirements Hike

CEOs of America's top banks are expected to voice their concerns regarding the proposed hike in capital requirements at a U.S. Senate banking committee hearing on the regulation of Wall Street firms. The executives, including David Solomon from Goldman Sachs and Jamie Dimon from J.P. Morgan, will oppose the U.S. government's planned "Basel III endgame" regulations, which aim to ensure that leading banks have enough resources to avoid potential collapse.

These rules, which were proposed in July, will require banks to hold more capital along with other changes. Dimon, the CEO of J.P. Morgan, plans to caution lawmakers about the adverse effects of these proposed regulations on the U.S. economy. He will highlight that they would limit banks' ability to deploy capital and force top lenders to hold up to 25% more capital on their balance sheets.

Dimon is expected to say, "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. Banks would be limited in their ability to deploy capital in times when it is 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 framework, developed by the G10's Basel Committee on Banking Supervision, was designed to strengthen regulation in response to the 2008 financial crash. The Basel III endgame represents the final implementation of the Basel II regulatory push.

Restructuring Basel III Rules: Concerns Raised by Industry Leaders

Goldman Sachs Chief Executive, David Solomon, is poised to caution that the United States' proposed adoption of the Basel III rules will introduce significantly more stringent regulations than any other jurisdiction. This shift has the potential to impede the competitiveness of the American banking sector.

Additionally, Solomon will highlight the possibility of higher inflation levels as a result of these new rules. The increased cost of providing debt to customers, including manufacturers, food producers, and energy companies, may contribute to this inflationary trend.

In a similar vein, Jamie Dimon, CEO of JPMorgan Chase, will express concerns that the stricter capital requirements could render certain financial services unprofitable. Consequently, banks may cease offering these services and instead redirect their focus towards less-regulated markets.

According to Dimon, "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."

Meanwhile, Morgan Stanley's CEO, James Gorman, is expected to denounce the proposed Basel III endgame rules, deeming them unnecessary. He will also caution against the potential implications of these rules, which could lead to credit becoming more expensive and less accessible to both consumers and businesses.

The recent collapse of Silicon Valley Bank in March has intensified calls for stricter capital requirements. These measures aim to safeguard banks against the risk of ultra-fast bank runs stemming from the rapid pace at which money can be withdrawn in the digital age.