US Banks and the Basel III Endgame: The Debate Intensifies

At a recent Senate hearing, major US banks, including JPMorgan, Morgan Stanley, and Goldman Sachs, voiced strong opposition to the proposed Basel III Endgame rule. This rule, which seeks to revamp how banks calculate their loss-absorbing capital, could potentially hike capital requirements by 20-25% for large banks. Jamie Dimon, CEO of JPMorgan, articulated the industry’s concerns, suggesting that the rule would render certain banking services uneconomical, leading to banks either discontinuing these services or increasing charges to maintain them​​​​.

The Basel III Endgame, a response to the 2007-2009 financial crisis, has been met with fierce opposition from the banking industry. The CEOs used the hearing as a platform to persuade lawmakers, particularly moderate Democrats, about the rule’s potential to stifle lending, which they argue could adversely affect small businesses and consumers. Dimon, in his statement, expressed concerns that the rule, as drafted, could fundamentally alter the U.S. economy in unforeseen ways, pointing out that certain types of loans, such as those for solar and wind projects, could become unprofitable​​.

Democrats, however, remained skeptical of the banks’ assertions. Senator Sherrod Brown, chairing the Committee, criticized the banks for their aggressive lobbying against the regulations. He contended that banks have overstated the potential adverse impacts of the rules in an effort to preserve their profit margins. Brown emphasized that the additional capital requirements set by Basel are necessary to safeguard the banking system from unexpected shocks, citing the recent collapse of Silicon Valley Bank and others as examples. He argued that strict rules, such as capital requirements, are essential to protect workers, taxpayers, and the economy by preventing big banks from taking excessive risks without sufficient capital to avert financial crises and bailouts​​.

Republican senators showed more sympathy for the banks’ position. Senator Tim Scott described the Basel proposal as a “nightmare” that could sideline significant capital, potentially harming everyday Americans. Senator Mike Rounds echoed this sentiment, raising concerns about the impact of the regulations on homebuyers, farmers, and small business owners, with all eight bank CEOs indicating that these groups could be adversely affected​​​​.

This debate illustrates the ongoing tension between the need for robust financial regulations to prevent future crises and the concerns of the banking industry about the potential economic impact of such regulations.