The controversial capital requirements proposed by the Federal Reserve came up repeatedly throughout the hearing, with many CEOs opposed to the provisions or in favor of amendments before the requirements go into effect. Here are the top takeaways that investors need to know.
Small business lending (00:00:24)
Banking analyst Meredith Whitney of Meredith Whitney Advisory Group broke down the Basel III post-crisis regulatory requirements and the impact they will have on small business lending. Whitney said, "It's bad because as you drive more banking out of the regulated banking system and into the non regulated banking system ... you have more of that going to predatory lenders, and lending will just become that much more expensive."
"We believe the capital accumulated by the industry should continue to serve the customers and America's economy, not be subject to regulatory capture by a theoretical model," Bank of America Chairman and CEO Brian Moynihan explained. "The $30 billion today in excess for Bank of America should be used to grow the U.S. economy."
Home ownership (00:01:13)
Whitney explained the potential impact of the capital requirements on mortgages and new homeowners. She said, "Mortgages and home ownership is at the lowest it's been in terms of younger individuals. The average homeowner is getting older and older and older. So it's a very important issue and should be a very important issue for these senators because that's their constituents."
"The rule would have predictable and harmful outcomes to the economy, markets, businesses of all sizes, and American households," JPMorgan Chase Chairman and CEO Jamie Dimon explained. "Mortgages and small business loans would be more expensive and hard to access."
Ability to access credit (00:02:13)
Whitney broke down the inflationary environment and the impact to access credit amid the regulatory reforms. She said, "The cost of capital would just be higher in terms of it will be more expensive for many people to access credit."
"Raising capital requirements by as much as 20 percent on an industry that all participants believe is well capitalized is a bad idea in any environment," Citigroup CEO Jane Fraser said. "But it becomes even more problematic with economic uncertainty ahead."
00:00:54 - Bank of America Chairman and CEO Brian Moynihan
00:01:13 - Meredith Whitney on home ownership
00:01:41 - JPMorgan Chase Chairman and CEO Jamie Dimon
00:02:13 - Meredith Whitney on credit
00:02:21 - Citigroup CEO Jane Fraser
Video Transcript
[MUSC PLAYING]
JENNIFER SCHONBERGER: I'm here on Capitol Hill, where the CEOs of the nation's largest banks just slipped in this door behind me here to sit down for what's become an annual oversight hearing of Wall Street for the Senate Banking Committee. Front and center will be the Federal Reserve's proposed capital requirements, which bank CEOs have been vigorously lobbying against.
MEREDITH WHITNEY: They're asking these questions about what Basel III Endgame increased capital will do to lending, specifically lending to small businesses and low-income consumers. And it's bad, right? Because as you drive more banking out of the regulated banking system and into the non-regulated banking system that isn't required to invest in community-- in the community Reinvestment Act, you have more of that going to predatory lenders. And lending will just become that much more expensive.
BRIAN MOYNIHAN: We believe the capital accumulated by the industry should continue to serve the customers and America's economy, not be subject to regulatory capture by a theoretical model. The $30 billion in excess today of Bank of America should be used to grow the US economy, to support the business plan of small businesses and medium-sized businesses, to help consumers buy a home and recognize the American dream.
MEREDITH WHITNEY: Mortgages and home ownership is, you know, at the lowest it's been in terms of your younger individuals. And home ownership, the average homeowner is getting older, and older, and older. So it's a very important issue and should be a very important issue for these senators because that's their constituents. Yet the proposal is under this system, under the Basel III Endgame Proposal are going to hurt the consumer. That's just a fact.
JAMIE DIMON: The rule would have predictable and harmful outcomes for the economy, markets, businesses of all sizes, and American households in ways that the Federal Reserve has not studied, contemplated, or shared. Mortgages and small business loans would be more expensive and harder to access, particularly for low to moderate income borrowers as costs for originating and securitizing loans rise. From beverage companies that need to manage aluminum costs to farms that need to protect against environmental risks, if the cost of hedging these risks increases, everything from a can of soda to meat products will be impacted.
MEREDITH WHITNEY: Inflationary insofar as cost of capital will just be higher, in terms of it will be more expensive for many people to access credit.
JANE FRASER: Raising capital requirements by as much as 20% on an industry that all participants believe is well capitalized is a bad idea in any environment. But it becomes even more problematic with economic uncertainty ahead. The most likely result of increasing the cost of banks to offer a variety of products is that it would move more activity into the less-regulated non-bank sector, which carries its own risk for consumers and the stability of the financial system.
