JPMorgan Chase’s CEO, Jamie Dimon, has raised concerns and criticized US regulators for their recent proposals for new capital rules, warning that these measures could render bank stocks uninvestable and lead to increased borrowing costs for loans. The issue at hand revolves around the Federal Reserve’s proposals unveiled in July, which are part of the final implementation of international banking standards known as the Basel III endgame reforms.
Dimon’s criticism is part of a broader pushback from senior Wall Street executives against the Federal Reserve’s proposals, with the financial industry’s lobby groups even launching an advertising campaign called “Stop Basel Endgame.”
The proposed reforms are seen as potentially limiting lending activities by banks and could drive more banking activities into less regulated sectors. Under the Federal Reserve’s proposals, banks would need to hold an additional $2 of capital for every $100 of risk-weighted assets.
Dimon voiced his concerns at an industry conference organized by Barclays, questioning whether regulators wanted bank stocks to be investable again. He expressed hesitancy about buying bank stocks and suggested they might be no better than “equal weight.”
Goldman Sachs CEO David Solomon also criticized the new capital rules, arguing that they had gone too far and would hinder economic growth without significantly enhancing safety and soundness.
Bank of America’s Chief Financial Officer, Alastair Borthwick, added to the criticism, pointing out that the Federal Reserve’s proposals could result in double-counting risk-weighted assets in some cases, further constraining bank lending.
The United States, which has a history of adapting international banking standards to its own needs, has lagged behind most jurisdictions in implementing the Basel reforms for its banks. According to Dimon, the proposed US plan would require JPMorgan to hold 30% more capital than a European bank.
While the Federal Reserve is currently seeking comments on the proposed changes, Dimon expressed skepticism that substantial changes would be made, suggesting that the regulators would likely proceed as planned. Some Fed governors have already expressed concerns about certain aspects of the proposals, warning that they could have unintended consequences, including increased costs of credit and disruptions in financial markets.
Fed Chair Jerome Powell, however, supported the proposals, emphasizing the need to strike a balance between higher capital requirements and their associated costs through public input and deliberation.
