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Stress Tests Underscore Capital Strength of Nation’s Largest Banks
“The results affirm that the additional capital requirements in the Basel III Endgame proposal are not justified,” Forum CEO says.
Washington, D.C. – Financial Services Forum President and CEO Kevin Fromer issued the following statement today in response to the Federal Reserve Board’s 2024 stress test results:
“Today’s stress test results confirm that the largest U.S. banks are highly capitalized and would remain capable of supporting the economy in the face of a severe economic downturn.
“The results affirm that the additional capital requirements in the Basel III Endgame proposal are not justified. As stated numerous times by regulators, the nation’s largest banks are well capitalized and are a strong source of support to households and businesses, including during times of stress.
“Increasing capital is not free. Policymakers across the political spectrum, along with hundreds of policy experts, state governments, civil rights organizations, and others have warned that the Basel III Endgame proposal will make financing more expensive and raise costs for American consumers and businesses of all sizes. Additional costs without clear benefits simply equate to an unnecessary tax on individuals and businesses.”
Additional Background:
The 2024 stress tests continue the highly rigorous and dynamic conditions applied to the largest banks in the United States. Since 2010, the eight U.S.-based Global Systemically Important Banks have more than tripled their Common Equity Tier 1 capital, the most loss-absorbing capital that acts as a buffer against losses, to $940 billion. This strength positioned them during the real-life stress tests of the pandemic and the 2023 regional banking turmoil to support American households and businesses across the country.
Numerous government reports, including recent financial stability and supervision reports from the Federal Reserve, have underscored the strength and resiliency of the U.S. banking sector. The Federal Reserve started out its latest Regulation and Supervision Report by saying, “The banking system remains sound and resilient.”
A broad array of stakeholders have raised significant concerns about the Basel III Endgame proposal. These concerns include higher costs and reduced access for borrowing, higher costs for states and communities building roads or improving schools, greater financial stability risks if regulation accelerates the movement of lending and services to non-banks, unlevel competition for U.S. companies selling into overseas markets, and more.
The Urban Institute, the National Housing Conference, the National Urban League, the NAACP, the Mortgage Bankers Association, and others have warned that the proposal would negatively impact housing finance and homeownership, particularly for low- and moderate-income borrowers and communities as well as Black and Hispanic borrowers. The American Public Gas Association stated in its comment letter that the proposed rule would “burden consumers with higher utility bills due to the costs of upstream regulatory compliance obligations.”
Organizations including the National Association of Manufacturers, the American Farm Bureau Federation, CalPERs, the American Benefits Council, the Business Roundtable, the American Public Gas Association, all submitted comments opposed to the rulemaking, highlighting significant concerns with the downstream impacts to their respective industries and customers if the proposal were to be finalized in its current form. A letter signed by more than 100 companies, including AT&T, Hilton, Hertz, IBM, Marriott, PayPal, Southwest Airlines, Siemens USA, Volvo, Warner Bros. Discovery, Whirlpool and Yum Brands, urged regulators to reconsider the rulemaking given the impacts to consumers and economic stability.
Former Federal Reserve Board Governor Randall Kroszner expressed in a recently published white paper that higher capital requirements would increase banks’ funding costs not only for trading activities but for credit provision, lending, and other financial services.
Policymakers from both parties have also expressed concerns with the proposal’s changes. For example, 59 Democratic members of Congress signed a letter in opposition to the new charges for operational risk and a House Financial Services Committee bipartisan letter voiced concern with the “cumulative consequences of the proposed capital rule on capital markets” among other key activities like “underwriting, derivative hedging, securitization.”
Click here to learn more about what policymakers, experts, and officials are saying about the capital levels of the nation’s largest banks.
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The Financial Services Forum is an economic policy and advocacy organization whose members are the chief executive officers of the eight largest and most diversified financial institutions headquartered in the United States. Forum member institutions are a leading source of lending and investment in the United States and serve millions of consumers, businesses, investors, and communities throughout the country. The Forum promotes policies that support savings and investment, financial inclusion, deep and liquid capital markets, a competitive global marketplace, and a sound financial system.
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