February 24, 2024
Wall Street's top CEOs will testify before Congress on Wednesday.  Here's what to expect.


The CEOs of America’s biggest banks will line up in front of lawmakers this week to try to convince Washington and the world that the banking sector is back on a stable footing after the regional banking crisis earlier this year.

The hearing before the Senate Banking Committee is part of Congress’s annual oversight of the financial sector and included everyone from Jamie Dimon of JPMorgan Chase (JPM) and David Solomon of Goldman Sachs (GS) to Brian Moynihan of Bank of America (BAC). Top officials will participate. ,

Much of the focus during Wednesday’s hearing will be on the higher capital requirements proposed by the Federal Reserve this summer, called the Basel III endgame measure, which the gathered CEOs have been lobbying furiously against for months.

“The irony is that the proposal to reduce risk would create even more risk in the financial system,” Dimon said in his opening remarks, adding that “it would fundamentally alter the American economy in ways that the Federal Reserve Has not studied or considered.” ,

Other CEOs are set to reiterate the message in their prepared remarks, with Solomon saying the proposal “has a particularly negative impact on the functioning of the capital markets.”

Wall Street's top CEOs will testify before Congress on Wednesday.  Here's what to expect.

Banking CEOs raise their hands in response to a question during a Senate Banking, Housing and Urban Affairs Committee hearing on annual oversight of the largest banks on September 22, 2022. (Tom Williams/CQ-Roll Call, Inc. via Getty Images) (Tom Williams via Getty Images)

At the Goldman Sachs US Financial Services conference on Tuesday, the companies offered a preview of other topics that could come up at Wednesday’s hearing.

The gathered CEOs touted the resilience of the US economy during their speeches in New York, but urged restraint in terms of expectations for 2024. Wells Fargo CEO Charlie Scharf also criticized the Fed’s capital rules, saying the requirements could limit his bank’s activities in the future.

The CEOs of Citigroup (C), Wells Fargo (WFC), State Street (STT), BNY Mellon (BK), and Morgan Stanley (MS) will also testify at the hearing before the panel of 23 senators.

Questioners will range from Speaker Sherrod Brown (D-Ohio) to other prominent figures, including two former presidential candidates: Senators Tim Scott (R-S.C.) and Elizabeth Warren (D-Mass.).

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Focus on capital needs

The central issue on Wednesday is set to be the so-called Basel III measures that were first developed after the 2007-2009 global financial crisis.

The final set of these rules, unveiled this summer, focuses on the amount of capital that banks must reserve to protect themselves from bankruptcy, which regulators are expected to finalize in the coming months.

The standards took on a new urgency this spring after banks like Silicon Valley Bank and Signature Bank failed primarily due to lack of liquidity.

WASHINGTON, DC - SEPTEMBER 12: Committee Chairman Sen. Sherrod Brown (D-OH) speaks with Ranking Member Sen. Tim Scott (R-SC) as they attend a Senate Banking Committee hearing on Capitol Hill on September 12, 2023 in Washington. Reached for.  DC.  The hearing focused on oversight by the US Securities and Exchange Commission.  (Photo by Drew Angerer/Getty Images)WASHINGTON, DC - SEPTEMBER 12: Committee Chairman Sen. Sherrod Brown (D-OH) speaks with Ranking Member Sen. Tim Scott (R-SC) as they attend a Senate Banking Committee hearing on Capitol Hill on September 12, 2023 in Washington. Reached for.  DC.  The hearing focused on oversight by the US Securities and Exchange Commission.  (Photo by Drew Angerer/Getty Images)

Committee Chairman Sherrod Brown (D-Ohio) recently spoke with Ranking Member Senator Tim Scott (R-S.C.) at a Senate Banking Committee hearing on September 12. (Drew Angerer/Getty Images) (Drew Angerer via Getty Images)

The proposal would raise capital requirements for banks by 16% overall, and scope out the new requirements to institutions with at least $100 billion in assets — an effort to include smaller banks like SVB.

A new memo released Tuesday by the Financial Services Forum – which represents all eight CEOs – argued in part that this year’s banking crisis shows that tougher requirements are not needed.

The group’s chairman and CEO, Kevin Frommer, wrote of how America’s largest banks “served as a source of strength during the COVID-19 pandemic and the banking turmoil of 2023,” arguing that the current proposal would be fundamentally flawed. The country’s largest banks have already tripled their capital levels in the last 15 years.

The memo also said Wednesday’s hearing would be an opportunity to discuss “how the Basel 3 endgame capital proposal will harm consumers, businesses of every size, and the economy as a whole.”

While Fed Vice Chair for Supervision Michael Barr proposed the new framework this summer, not every member of the central bank is included in it.

Fed Governor Christopher Waller called the proposal “excessive” in a recent conversation with the American Enterprise Institute. He told the think tank last week that if the proposal removed separate requirements for so-called operational risk – the risk of potential losses from disruptions caused by internal mismanagement such as fraud, or external shocks such as cyberattacks – then he would support the proposal. can do. Capital requirement for operational risk is a major problem for banks.

“Michael Barr knows he’s gone too far on some things,” said David Wessel, a senior fellow in economic studies at the Brookings Institution. He predicted Washington would refine some areas, including provisions on operational risk, in the coming months as lawmakers work to finalize the proposal.

At Wednesday’s hearing the CEOs are likely to deliver their message to the liberal lawmakers in the room who could help influence the upcoming requirements — Democrats like Senators Jon Tester (D-Mont.) and Mark Warner (D-Va.) who Concerns have been raised. About the requirements.

With more left-leaning people like Brown and Warren on the committee, he is likely to find a less receptive audience. Senator Brown said this summer that he supports the requirements, noting that when banks fail “workers and small businesses pay the price.”

On the other side of the aisle, Republicans like committee ranking member Tim Scott have frequently criticized the proposal, including leading a recent letter signed by every Republican member of the Senate Banking Committee calling on the Biden administration to completely end the Basel III endgame. There has been a call to withdraw from.

But at the end of the day, Wessel said “it’s not really up to Congress” how the rules are finalized. “The real audience here is people like Jay Powell.”

Many other issues are also in question, from the national debt to CEO salaries

Other concerns are also likely to be discussed at Wednesday’s hearing as senators consider it.

CEOs appear before Congress every year since the financial crisis of 2007–2009 and are often asked to weigh in on a wide range of topics. Senator Warren has frequently confronted CEOs like Dimon, particularly on issues such as the Zelle fraud in 2022 and overdraft fees in 2011.

U.S. Senator Elizabeth Warren, Democrat of Massachusetts, questions bank CEOs, including Wells Fargo CEO and Chairman Charles Scharf (left), Bank of America Chairman and CEO Brian Thomas Moynihan (second left), Jamie Dimon (second right), Chairman We do.  and Jane Fraser (R), CEO of JPMorgan Chase, and Citigroup CEO, as they testify during a Senate Banking, Housing and Urban Affairs Committee hearing on the annual oversight of the nation's largest banks on Capitol Hill in Washington, DC Were giving.  September 22, 2022.  (Photo by SAUL LOEB/AFP) (Photo by SAUL LOEB/AFP via Getty Images)U.S. Senator Elizabeth Warren, Democrat of Massachusetts, questions bank CEOs, including Wells Fargo CEO and Chairman Charles Scharf (left), Bank of America Chairman and CEO Brian Thomas Moynihan (second left), Jamie Dimon (second right), Chairman We do.  and Jane Fraser (R), CEO of JPMorgan Chase, and Citigroup CEO, as they testify during a Senate Banking, Housing and Urban Affairs Committee hearing on the annual oversight of the nation's largest banks on Capitol Hill in Washington, DC Were giving.  September 22, 2022.  (Photo by SAUL LOEB/AFP) (Photo by SAUL LOEB/AFP via Getty Images)

CEOs listen to questioning from Senator Elizabeth Warren in 2022. (SAUL LOEB/AFP via Getty Images) (SAUL LOEB via Getty Images)

Consumer issues are also expected to be raised, notably a proposed rule by the Consumer Financial Protection Bureau to rein in credit card late fees and limit late fees to $8 unless a bank can show it had a reason to be late. There is a need to charge more than this to collect payments.

Another potential issue: a bipartisan bill advanced this summer to “withdraw” compensation from bank executives who oversee a failure.

The bill was overwhelmingly approved in June by the same group – the Senate Committee on Banking, Housing and Urban Affairs – by a vote of 21 to 2 – the CEO of which will testify first. If that bill ultimately passes, it would give the Federal Deposit Insurance Corporation (FDIC) new powers to withhold money from CEOs if a bank proves to have “failed the fundamentals of bank management.”

The broader implications of America’s rising national debt may also be high on the agenda, with CEOs raising concerns in recent months over America’s borrowing, now about $34 trillion.

In an interview with Yahoo Finance last month, Dimon also stressed the need for Washington to change its ways on things like regulations, which he says are hurting American competitiveness.

“DC is going out of its way to make it difficult for small to large businesses to grow and expand,” he said at the time, comparing the regulations to barnacles, adding, “I’m in favor of good regulations, not endless regulations.” “

This post has been updated with additional developments.

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