The Senate Banking Committee held its annual hearing on Wall Street oversight on Wednesday.

Lawmakers heard testimony from JPMorgan CEO Jamie Dimon, Citi CEO Jane Fraser and Bank of America CEO Brian Moynihan, in addition to the CEOs of Wells Fargo, State Street, BNY Mellon, Goldman Sachs and Morgan Stanley.

Takeaways from the annual Senate hearing with top bank CEOs

Usually when lawmakers have the opportunity to question the nation’s top banking CEOs under oath there’s no shortage of fiery exchanges.

Today’s hearing was a big outlier.

That was especially evident when Democratic Sen. Elizabeth Warren, a fierce critic of Wall Street, got all eight CEOs to agree with her that cryptocurrency platforms should have to adhere to the same anti-money-laundering rules as banks.

While bank CEOs have already been very vocal about their opposition to a series of new regulations that could go into effect in the coming years, the hearing served as a platform for them to persuade more lawmakers who may be on the fence.

The proposed regulation, known as Basel III Endgame, would force banks to set aside more funds to cushion against potential future losses. The eight bank CEOs testifying on Wednesday told lawmakers they would not encounter any issues meeting the new requirements. At the same time, they said it would harm consumers and businesses because banks would not have as much funds available to lend out, which would result in them having to charge higher interest rates.

In addition, the bank leaders said it would negatively impact first-time homebuyers and people saving for retirement.

Democratic senators Sherrod Brown and John Fetterman were the only lawmakers at Wednesday’s hearing who pushed back against the CEOs’ claims they have sufficient guardrails in place to shield them from a bank failure and that forcing them to hold more capital would harm the economy.

All the other senators at Wednesday’s hearing either agreed with the bank CEOs’ claims about the impact of Basel III or did not bring it up.

Few bank CEOs were asked to share their assessments of how the US economy is faring, something that typically comes up at these hearings, given how much information banks have on the health of consumers based on their account and transaction data.

Jamie Dimon on the FDIC: “I would love to take it over”

Jamie Dimon, CEO of JPMorgan Chase, the largest bank in the United States, said he would “love” to take over the Federal Deposit Insurance Corporation, a regulator that oversees his company.

Dimon’s comments came after Democratic Sen. John Fetterman asked the eight CEOs testifying before the Senate on Wednesday if they think any changes need to be made concerning banking regulation after three bank failures this year.

“There were specific things that happened in Silicon Valley Bank that should be addressed by regulations, and the most important one is excessive interest rate risk,” Dimon said.

Earlier, Fetterman expressed concerns that the three bank failures drained billions of dollars from FDIC’s deposit insurance fund. Dimon clarified, “Banks pay for the FDIC, that’s not government money, that is a mutual company and I would love to take it over.”

Democratic Sen. Sherrod Brown, who heads the Senate Banking Committee, said it “will take under advisement Mr. Dimon’s proposal will take over the FDIC.” The remark was met with laughter from the other bank CEOs who testified on Wednesday.

Sen. Warren, a fierce critic of Wall Street, finds rare unity with bank CEOs

Democratic Sen. Elizabeth Warren admitted Wednesday she’s not usually one to hold “hands with the CEOs of multibillion-dollar banks.”

However, when she asked the eight bank CEOs testifying before the Senate committee if they think “crypto companies facilitating financial transactions should have to follow the same anti-money laundering rules that your bank has to follow” they all responded “Absolutely.”

Warren’s concerns about crypto come after investigators in the United States and across the globe found that Hamas used cryptocurrency to raise funds that allowed them to evade sanctions put in place.

JPMorgan Chase CEO Jamie Dimon told Warren at Wednesday’s hearing that if he worked within the government “I’d close it down,” referring to cryptocurrency.

Sen. Kennedy questions FDIC’s ability to oversee banks given recent allegations: “Isn’t that kind of like being given gun safety advice by Alec Baldwin?”

In light of the allegations of pervasive sexual harassment and other serious misconduct at the Federal Deposit Insurance Corporation that have recently come to light, Republican Sen. John Kennedy of Louisiana raised concerns that the agency is not qualified to regulate banks.

This comes after a Wall Street Journal investigation based on interviews with more than 100 current and former FDIC employees found that the agency rarely disciplined managers accused of sexual misconduct and other offenses. Several independent investigations are taking place following the Journal’s reporting.

Kennedy suggested that financial regulators, especially the FDIC, played a role in the recent bank failures by not catching the banks’ management issues before it was too late.

“It may have been that the people in charge of watching those banks at the FDIC were too busy urinating off the top of a hotel,” Kennedy said in a reference to part of the Journal’s story.

Separately, the FDIC is one of the financial regulators that have signed off on new bank capital requirements which Kennedy, among other lawmakers, opposes.

“Do you find it ironic that they’re telling you this and proposing this? Isn’t that kind of like being given gun safety advice by Alec Baldwin?” Kennedy asked JPMorgan Chase CEO Jamie Dimon, referring to the fatal 2021 shooting on the set of the film “Rust”.

Dimon did not respond directly to Kennedy’s question but rather asserted that “the major risk of those banks [that failed] was hiding in plain sight, which is interest rate exposure.”

Bank CEOs asked about impact of rising debt levels on the US economy

There’s been considerable attention lately given to the level of debt in the United States, which stands at nearly $34 trillion, an increase of around $8 trillion from five years ago.

Republican Senator Mike Rounds from South Dakota asked banking CEOs how the rising debt levels could negatively impact the economy.

Goldman Sachs CEO David Solomon said he believes it “hampers our ability to invest in other things” because the burden of debt and the government’s ability to finance it is weighing on the economy.

“As the cost of debt goes up, it certainly can create volatility in our funding treasuries and can create volatility in the Treasury market,” Solomon said.

What is Basel III endgame?

A catchphrase you’ll likely hear throughout today’s Senate Banking Committee hearing is “Basel III” or “Basel III endgame.” But what exactly is that?

Basel III endgame is the title of a package of new banking regulations that could go into effect in the coming years. It was recently greenlighted by the Federal Reserve, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

However, the proposal — which, among other things, would increase the level of capital that banks with at least $100 billion in assets would be required to hold — has been met with significant backlash from lawmakers on both sides of the aisle as well as bank CEOs.

US banks deemed systemically important globally — or, colloquially, “too big to fail” — would have to set aside an additional 19% of capital on average, according to the proposal. Banks with more than $250 billion in assets that aren’t considered systemically important would see a 10% increase in the capital they’re required to hold.

If banks have to set aside more capital, that means they have fewer funds to lend out to businesses and consumers. And bank CEOs argue it would force them to charge higher interest rates on loans.

But many top financial regulators argue that having a bigger capital cushion would strengthen banks’ ability during periods of financial stress where they could be more vulnerable. That, many feel, would lessen the risk that taxpayer funds would be needed to bail out banks, as was the case in the wake of the Great Recession.

Importantly, Basel III endgame has not been finalized and the standard notice-and-comment rule-making process was recently extended to January 16, 2024 from November 30.

Citi CEO apologizes for illegal discrimination against Armenian Americans

In the remarks for the hearing on Wednesday, Citi CEO Jane Fraser publicly acknowledged for the first time a Consumer Financial Protection Bureau investigation alleging the bank illegally discriminated against Armenian Americans for years by singling them out on credit card applications based on their surnames.

“We are deeply sorry and apologize to the Armenian American community that we recently fell short of our fair lending expectations,” Fraser said in her prepared remarks, adding that Citi has “taken action to make things right and prevent any recurrence.”

The CFPB found that from at least 2015 through 2021, Citi “targeted” retail services credit card applicants whom employees associated with Armenian national origin.

“Citi treated Armenian Americans as criminals who were likely to commit fraud,” the CFPB alleged.

Citi applied more stringent criteria to suspected Armenian Americans’ applications, including “denying them outright,” placing blocks on the accounts and requiring additional information, according to the regulator.

The CFPB said Citi targeted applicants with last names ending in “-ian” and “-yan” as well as applicants in and around Glendale, California, which is home to a large Armenian American population.

BofA’s CEO said consumers are pulling back

Bank of America CEO Brian Moynihan did not include his thoughts on the economic outlook in his prepared remarks. However, he said that “the way consumers are spending money is leveling out,” in an interview with CNBC on Tuesday. “But all in all [consumers are in] pretty decent shape.”

He also suggested that the Federal Reserve is in the midst of pulling off a soft landing — that is, getting inflation under control without a significant spike in the unemployment rate.

Citi’s CEO is warning about the economy

Add Citigroup CEO Jane Fraser to the growing list of bank CEOs who are warning about tough times ahead.

While Fraser doesn’t “see a drastic downturn on the horizon,” the head of the third-largest bank in the United States does see a recession coming, she said in prepared remarks released by the Senate Banking Committee on Tuesday ahead of an annual hearing on Wall Street oversight on Wednesday.

That recession could result because of factors including “persistent inflation in services, rising debt [levels], a slowdown in global growth and two major conflicts in Europe and the Middle East.”

On the consumer spending side, Fraser warned lawmakers that Citi data suggests people are pulling back more. That aligns with recent government consumer spending data. At the same time, customers who fall in the lowest band of credit scores are taking on the highest levels of debt since 2019, Fraser is set to say. (CNN)

•(L-R) Wells Fargo CEO and President Charles Scharf, Brian Bank of America Chairman and CEO Thomas Moynihan, JPMorgan Chase Chairman and CEO Jamie Dimon, Citigroup CEO Jane Fraser, State Street CEO Ronald OÕHanley, BNY Mellon CEO Robin Vince, Goldman Sachs CEO David Solomon and Morgan Stanley CEO James Gorman, testify during a Wall Street oversight hearing by the Senate Banking, Housing, and Urban Affairs committee on Capitol Hill in Washington, DC, yesterday.

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