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JPMorgan Chase chief executive Jamie Dimon criticised US regulators over recent proposals for new capital rules, warning they risked making bank stocks uninvestable and would result in borrowers having to pay more for loans.
At issue are proposals outlined in July by the Federal Reserve as part of the final implementation of international banking standards, the so-called Basel III endgame reforms.
Dimon is the latest senior Wall Street executive to push back on the Fed’s proposals. One of the industry’s leading lobby groups last week announced an advertising campaign called “Stop Basel Endgame”.
JPMorgan’s CEO said the proposed reforms would curtail lending by banks and push more banking activities into more lightly regulated sectors. Under the Fed’s proposals, lenders would be required to hold an extra $2 of capital for every $100 of risk-weighted assets.
“Do [regulators] want banks ever to be investable again?” Dimon said at an industry conference organised by Barclays.
“I wouldn’t be a big buyer of banks . . . I’d be no better than equal weight, or whatever you call it,” he told the audience of analysts and investors.
Goldman Sachs chief executive David Solomon has also argued that “these new capital rules have gone too far”.
“They will hurt economic growth without materially enhancing safety and soundness,” Solomon told CNBC last week.
Alastair Borthwick, Bank of America chief financial officer, added to the criticism on Monday, saying the Fed’s proposals could mean risk-weighted assets are double counted in some instances, which could again constrain bank lending.
“I think there’s going to be some important points of advocacy on the part of industry and by businesses in America, who are the ones who ultimately are going to pay for this,” Borthwick told the Barclays conference.
The US, which has a history of putting its own adjustments on international banking standards, has lagged behind most jurisdictions that have completed the Basel reforms for their banks.
Dimon said the US plan as written would mean JPMorgan would have to hold 30 per cent more capital than a European bank.
The Fed is now soliciting comments on the proposed changes in a notice of proposed rulemaking (NPR) but Dimon was sceptical that any material changes would be made.
“Do you think the NPRs are going to make a shit of difference?” Dimon said, in his characteristically blunt style. “It’s my academics arguing with their academics. They’re going to do what they want anyway. That’s all that’s going to happen.”
Two Fed governors have come out against certain aspects of the proposals, warning they would hinder competition and financial markets, among other unintended consequences.
“I am concerned that today’s Basel III proposal will increase the cost of credit and impede market functioning without clear benefits to the resiliency of the financial system,” said Christopher Waller in a late July dissent from the rule proposals, which ultimately garnered sufficient approval to proceed.
Fed chair Jay Powell supported the proposals. However, he alluded in July to the need to balance the benefits associated with higher capital requirements against the costs, saying that could be achieved with “public input and thoughtful deliberation”.