Wall Street Bank CEOs on Capitol Hill

Banks like stat Street to continue to provide highquality custody and Asset Management Services I am also concerned by the sec's proposed safekeeping rule which with no clear rationale challenges some of the foundational elements of custody Banking and in effect destroys the low cost near perfect service now provided to investors I hope these proposals can be adjusted for if they not they create risk of negative economic market and individual outcomes going forward I am very proud of our company our diverse Workforce and the role we play in the financial system State Street and the other Gip Banks here are the most well capitalized and technologically advanced Financial Services firms in the world they are essential to America's competitiveness and prosperity I look forward to our dialogue today thank Mr Hanley Mr Vince welcome good morning uh chair Brown ranking member Scott and members of the committee I've had the honor of serving as the CEO of bny melon for for just over a year I take this responsibility very seriously as a company we work for a strong competitive banking system that serves customers and communities supports the economy and preserves US economic leadership my appreciation for this role has only grown as I get to know our history our clients our people and our culture let me start with who we are bny melon is the nation's oldest bank founded by Alexander Hamilton in 1784 today we are a global financial services company with 50,000 employees our client base is varied ranging from governments and Pension funds to corporations and financial firms these clients all have different needs and roles in the economy and we provide the services to put their money to work keeping it safe moving it and managing it while we're proud of our history and our leading Market positions we do not take them for granted they are constant reminders to earn trust and to plan for the longterm we know that our economy will face challenges it's not a matter of if but when and for how long it's critical that we are prepared to operate through these different conditions being prepared to prevent respond and recover this is what we mean by resiliency it's a basic concept and a shared goal amongst our clients regulators and other stakeholders and it's embedded in our strategy one part of being prepared is financial resiliency having enough capital and liquidity to weather unexpected Market stress we have a strong track record and customers consistently look to us as a Dependable provider during Market disruptions we aim to manage our balance sheet conservatively with a high proportion of cash and high quality liquid assets to adjust for changing market conditions another part of being prepared is operational resiliency having the technology the people the processes in place to respond to events that could disrupt operations I'm very proud of the hard work that our teams have put in to keep markets running smoothly all through record volatility and volumes during the pandemic Wars and Market stresses this work happens behind the scenes and I want to commend our people who've made this happen we have a long Legacy of Firsts as a company to solve problems and help move the country forward we provided the first loan to the United States and we were the first stock listed on the New York Stock Exchange these actions taken for granted Ed today were Financial Innovations at the time but we cannot be complacent markets are uncertain we must adapt to new needs and address new risks as we plan and prepare for the future us leadership on technology including on Cyber distributed Ledger technology and artificial intelligence is important for our economy this will require diligence and Innovation by the public and private sectors to to address them in a responsible way finally I'd like to close with an emphasis on our more than 50,000 employees who do the hard work to keep our company and Global markets running our goal at B melon is to drive a spirit of ownership shared responsibility and mutual success Equity ownership in our company is an important part of this and I'm particularly proud of our BK shares program to Grant Equity to employees who otherwise would not have received stock this program has benefited more than 45,000 employees and allowed many of them to become firsttime participants in the capital markets that they help to serve this is just one example of our culture and commitment to invest in our people and our company's long-term success thank you for your time and I'm happy to answer any questions that you may have thank you Mr Vince Mr Solomon welcome thank you chairman Brown ranking member Scott members of the committee thank you for giving me the opportunity to testify I am proud to serve as the chairman and CEO of Goldman Sachs and Lead our incredibly talented team of 45,000 people around the world as they work tirelessly to serve our clients Goldman Sachs has a deep history spaning over 150 years as a global leader in Investment Banking Securities trading and Investment Management our size Global reach and capabilities allows us to provide tailored services and products aiding institutions businesses of all size and individuals in achieving their financial goals we set at the center of the US capital markets which forms the Bedrock of our financial system and helps Drive America's innovation in fact 75% of financing for us businesses and state and local governments is conducted through our Capital markets a core component of our firm lies on the talent and expertise our people of of our people and their commitment to advising our clients on buying and selling businesses raising capital and managing risks in particular Goldman Sach serves as a crucial risk advisor to help businesses of all sizes navigate through challenges and financial risks that rage from currency fluctuations and commodity price volatility to interest rate risks and various forms of credit risk in addition we Finance infrastructure projects for local governments to invest in schools hospitals and Roads we also invest on behalf of our clients so that jobs can be created retirement savings can grow and economies can expand we are able to facilitate all these activities because of the strength and resiliency of our balance sheet in fact since 2007 Goldman sachs's Capital has nearly tripled our liquidity has increased more than five times and our leverage has decreased by half in addition the Federal Reserve stress tests have consistently confirmed that all of us here have sufficient Capital to withstand a severe Global recession as an example the scenario has included a 50% decline in equity prices within a year in addition to separate Global Market shock that also features dramatic instantaneous declines in equity prices you have the finest and most Innovative financial institutions in the world represented here today and we all served as a source of strength to the economy throughout the pandemic the Ukraine war and Regional bank failures Federal Reserve chairman poell treasury secret Terry Yellen and many other government officials of both political parties across three administrations have repeatedly stated that the largest banks are strong and well capitalized in the wake of significant interest rate hikes I believe the US economy has proven to be more resilient than expected and the chances of a recession have decreased although there are many reasons to remain Vigilant we are seeing a further tightening of financial conditions the US structural debt continues to grow and become more expensive to finance and the geopolitical stress is associated with Ukraine China and the Middle East could impact economic growth and stability around the world against this backdrop one headwind to US economic recovery is the finalization of the new capital rules referred to as bosel 3 endgame these rules were conceived to create a common set of international Capital standards without raising the aggregate amount of capital however the US proposal does exactly the opposite it's significantly more stringent than any other jurisdiction and would increase our Capital requirements by about 25% although this increase in capital is the result of a number of over caliber although this increase in capital is the result of a number of over calibrations throughout the proposal I want to highlight just one of the many issues that is particularly punitive to Capital markets Activities The Proposal nearly doubles the capital for Market making activity these higher requirements are simply layered on top of the global market shock that I discussed moments ago without any consideration for how they interact resulting in a significant double count as a result banks will need to hold capital for many of the exact same risks associated with those Market activities as of the third quarter the institutions most impacted by this proposal amount to 2third of both lending and capital markets activity in the US in addition since 2010 US Banks have underwritten 70% of equity financing at 60% of US dollar debt financing these punitive regulatory measures also run the risk of harming us competitiveness and Capital Market strength globally as well as pushing activity overseas and outside of the regulated banking sector sector without making the US system far safer indeed we believe the proposal will result in increased costs for Airlines manufacturers food producers pensions and mutual funds insurance companies small businesses and energy companies these costs will likely get passed on to Consumers for example it would quadruple our Capital requirements for clean energy tax Equity products and would increase our Capital eight times for important transactions we enter into with Pension funds to improve their return returns for retirees systemic Financial stability is critical to the functioning of the US economy and we should ensure that we are only taking actions that enhance the capacity of financial institutions to support our economy and provide demonstrable systemic benefit thank you I'd be happy to take any questions thank you m Mr Gorman welcome thank you uh chairman Brown ranking member Scott members of the committee thanks for having us here I'm honored to represent the Morgan Senate employees today and for the last 14 years as their chairman and and CEO in 2021 we were still battling an extraordinary Public Health crisis the economy was supported with monetary and fiscal stimulus and inflation was low a lot has change sense while inflation has receded from its highs the macroeconomic environment continues to be very complex we're also witnessing as is obvious substantial geopolitical challenges today at Morgan Stanley and our institutional businesses we help advise private companies and public sector entities for their financing needs that includes raising equity and debt Capital to fund and grow businesses invest in public infrastructure ultimately contributing to the growth of the economy we assist Pension funds mutual funds and other financial institutions trade and manage assets around the globe in our wealth and asset management businesses we're managing nearly 6.2 trillion of assets for individuals and households as well as institutions like endowments and Pension funds that manage the retirements of our public employees for millions of us households our services help families save money for retirement and for college and for a mortgage to build home ownership the US banking system remains strong and is the Envy of the world it is an extraordinary asset said for our country nowhere not China not Europe not South America not the UK not the rest of Asia has a system remotely having these kinds of strengths large US Banks have undergone a dramatic change in their capital and liquidity profile since the financial crisis of 15 years ago when the US government you acted decisively and quickly in implementing the dodf Frank and and SEC car reforms as we saw earlier this year there was a crisis among some Regional Banks it was not a banking crisis it was a crisis of three Banks it was in the spring and it was quickly averted by prompt regulatory action and with the strength and support from these large Banks we along with three other Banks together provided $30 billion in uninsured deposits to First Republic to assist the Reg ulators so that they could manage its ultimate resolution it was gratifying after being part of the problem in the 2008 financial crisis to have the financial strength and stability to be part of the solution current proposals to put additional Capital requirements of you as you've heard today on all the largest banks the so-called basil 3 endgame need to consider the full impact of the US economy and what it will mean for us small business and consumers regulations are only effective when they find that balance blanket increases in capital for the large US Banks who already undergo annual rigorous stress testing are require and are required to maintain specific Capital buffers already additional increases are wholly unnecessary it will make credit more expensive as everybody has said make it less accessible for consumers and businesses while harming the competitiveness of this economy one of the great strengths of the US economy in the banking system as it stands The Proposal would increase the cost of capital and borrowing across the economy not just to large and small corporations but to pensions municipalities and endowments we hope the federal agencies will be open to the changes to changes and reviewing the industry's comments thoughtfully as a global leader in financial services we have a responsibility to all the communities we operate many of those communities continue to experience social and financial challenges and we're using our resources to help them finally Mr chairman your letter dated November 6 you asked me to provide additional information on a number of topics and that's in the attached Enda uh thank you again chairman Brown ranking member Scott members of the committee we look forward to your questions uh thank you Mr Gorman a productive third quarter for your Banks your Banks as you like to say return Capital to shareholders in the form of dividends and stock BuyBacks during your earnings calls at the end of the third quarter we heard statements about how you're going to continue to manage your businesses to deliver value to your shareholders of course what we did not hear was any concern that your firms would not be able to meet the anticipated increased Capital levels under bosel 3 in game if I'm mistaken I would like you to set the record straight for the public and the investors do any of you have any reason to believe that your firm would not be able to achieve the increase Capital requirements if bosel 3 was adopted as proposed any of you think you cannot raise you you cannot deal you cannot achieve the increased Capital requirements raise your hands if you think you can't thank you I think you've indicated your firms will be able to meet the inhance capital requirements it leads me to conclude that the proposed Capital standards are not too honorous Mr sharf American support for unions as we've discussed is at a half Century High unions help ensure that work share in a company's Success Through better pay and better benefits control over their schedules greater stability to their personal and professional lives workers at two Wells Fargo branches will be voting to unionize this month dozens of other Union organizing drives are in the works Wells Fargo's recent scandals highlight the pressure that overworked and underpaid workers at Short staff branches face one worker said the executives don't have to deal with the consequences of their decisions in a direct sense but we do Mr sharf I appreciate your willingness to talk oneon-one about this with me I remain concerned about unfair labor practices and reports that Wells Fargo's geared up in response to the union Campaign Will you remain neutral as these employees vote to organize chairman Brown I agree with your sentiment about the importance of the workers and our employees um and we as you know we've done a tremendous amount to support them and will'll continue to do that and we believe uh that it's best that we have a direct relationship with uh those employees and we do intend to uh exercise our right to speak with them to make sure that they make an informed decision thank you I'm it was an opportunity to show the American public truly a new day at Wells Fargo I'm sorry that uh you failed to show that real change is a foot at your bank uh Mr sharf Mr moan Mr Diamond and Miss Fraser according to cfpb failure to invoke the service members civil Relief act interest rate reductions cost service members $100 million between 2007 and 2018 you can unil unilaterally act to ensure service members receive the those benefits the escra benefits they're entitled to do your Banks proactively check authorized military databases to identify accounts that may be eligible for escro protections uh begin Mr sharf uh chairman we have huge respect for those that have been in the military specifically it's your question I'm I'm not sure but certainly we'll check and get back to you okay thank you uh Mr morning we we again follow the SCC Provisions uh on an annual basis we retroactively looking back after we get the notification about $180 million a year we send back to those uh service members including fees which are not required to uh rebate but we go ahead and rebate them so I will check to make sure we're look looking at all available means but we comply with the law uh thank you Mr Diamond I'm sure we comply with the law but it's opportune to say that we hired 18,000 veterans in the last couple years we support the United States military we've hired 3,000 military spouses uh uh so we stand 100% behind the class de citiz we hold in the highest regard thank you Miss Fraser uh similarly chair Brown we are very proud to employ many veterans um and we're incredibly grateful for everything that they do for our country um we make extensive investments in ensuring that we comply with the laws um and we do indeed tap into the database thank you thank for your cander about that I I urge you all to proactively check whether customers are eligible for escro benefits it's the type of work that you could be doing the answers were were helpful and we will be back with all four of you about how we can help do that proactively there's plenty we don't agree on it's pretty clear but I also want to finish somewhere we do agree supplemental security security income SSI provides a Lifeline for 300,000 Ohioans nearly 8 million Americans living with disabilities the problem is ssi's eligibility rules haven't been updated by Congress that's on us in 40 years they're now so outdated they lock people in poverty the bipartisan policy Center called ssi's asset limit the most regressive anti- savings provision in federal law I have a bipartisan bill with Senator BRS of this committee uh to raise the program's asset Li and stop punishing people for working and saving Mr Diamond I know JP Morgan Chase is supportive of raising the asset level I thank you for your leadership on this tell us briefly how it affects JP Morgan and why you're so supportive then I'd like to ask all of you if you would join um Mr Diamond and Senator rounds and me in support Mr Diamond Senator thank you uh we have employees who don't want us to increase their salary because if it goes over a certain amount they can't get that benefit which they're entitled to or we can't they can't have assets over $10,000 so this definitely should be fixed we fully support it and uh try to be helpful if we can thank you Mr sharf do you would you support agree to support Mr Diamond's position in mind it it sounds like something that we'd be willing to support but like to take a look at it okay Mr Moran M Fraser fully and wholeheartedly okay Mr anley we do support it thank you Mr Vince we do support it Mr Solomon we do support him Mr Gorman yes thank you all Senator Scott thank you Mr chairman a question for the panel uh the chairman asked a question about can you achieve the increased Capital requirements my question is can you achieve the increased Capital requirements without negative consequences to the economy and to lending um Senator we do have concerns that uh some of the items in The Proposal will lead us to either uh increase the price um or to reduce the amount that we lend there's a chart in the NPR that looks deceivingly simple it says here's the rwa before the proposal and here's the rwa after proposal it says 24% increase that is a reduction the capacity of this industry to serve its clients no questions asked it the capital could have been used to create those additional rwa incremental has to be used to sustain the same uh activities we have today with no risk from the day before to the day after what the Enterprise does that's the point we're trying to make is that this is about using our Capital whether we have it or not and whether we have it to meet the new requirements to support additional activity not the old activity which doesn't help the American economy thank you I think one of the frustrations you hear from this group up here is this question should have been asked before it went out there's no qu we have to hold 30% more Capital than International Banks in the United States of America for every loan a lot of loans have now fallen between have become unprofitable so a lot lot of loans when we talk to build they don't make sense for our company anymore small business cdfi solar wind Middle Market loans uh certain uh trades you do with uh with pension plans Etc the work should have been done beforehand by law the qis was the qualitative impact should have been done beforehand we had 10 years to do this and it's shocking to me that we're sitting after 10 years and we're talking about what's it going to do for small business and we have to analyze it today it shouldn't now we all going to fill hundreds of P thousands of pages of forms responding in a very detailed way to every single one of these things but it was not thoughtfully done I'm not sure it was shared fully among all The Regulators uh this should be relooked at and before I go to miss Fraser my assumption is everyone's going to say with consequences that will be negative so let me ask a different question to you Miss Fraser the the impact and perhaps the unintended impact from bowel the endgame on customers we so often talk about the American Consumer as if there's just one generic consumer out there but from a state like South Carolina where we have a lot of farmers the impact on farmers and access to not only credit but liquidity during the hard times can you perhaps give me a 30 second reaction to will this have a negative impact on some of the rural communities that KNE derivatives you walk me through that for a second um certainly and thank you very much for your question Senator uh this will to your point increase the cost of borrowing uh for farmers and Rural communities it could impact them in terms of their mortgages it could impact their credit card um it could also importantly impact uh their uh their cost of any borrowing that they do and let me give you an example for a farmer um hedging your commodity costs and your commodity prices is an absolutely fundamental piece of providing stability and ability to sleep at night uh under the Basel 3 proposal uh this the cost of the derivatives would increase quite materially and that would therefore uh have an impact on Farmers ability to do a fairly fundamental component of risk management it could also impact their access to credit so it's the cost of borrowing it's the access to credit and it's some of the fundamental tools that they need to manage their stability of their income Mr Solomon you said something earlier that I thought was really important that as we did discussed the basil endgame proposal and its impact on lending and on folks like me that come from poverty or looking for the ability to achieve the American dream someone would say contrary to what I'm talking about maybe there are other points that are important that I'm missing in my thought process like is it going to make our financial system safer have we not done enough work since the financial crisis of 2007 through 2009 to make sure that our financial institutions are able to meet obligations and responsibilities under an even worst case scenario and your opening comments reflected that yes we can meet even a a more disastrous crisis can you walk through the importance of the regulatory burden that exists and how the bowo endgame would make it even harder for small business lenders or small business borrowers but not necessarily making our economy safer sure thank you for the questions Senator uh I tried to highlight in my my my opening comments um and Mr Gorman highlighted it quite clearly these stress tests are very very significant tests that look at very very severe shocks to our balance sheets I highlighted a 50% decline in equity prices over a one-year period on top of then a simultaneous Equity Market shock that has looked at much as 30% instantaneous Equity decline so very very severe shocks that we've not seen even in the worst crisis that puts buffers in place that protect the system now of course a sound and secure system is imperative for our Capital markets and we can always have debates at the margin as to whether or not there are things that we can do that can strengthen the system but a wholesale increase of 25% capital on the largest banks with lots of individual Provisions that affect different activities um I think is ultimately punitive to economic growth and doesn't strike the right cost benefit analysis we of course need to make the system secure the system is in good shape we've seen that under stress that doesn't mean there aren't things that can be done at the margin but this is a wholesale change that leads to um that leads to problems uh Miss Frasier highlighted um one example talking about Farmers you can look at Airlines hedging jet fuel if you want to look at other derivatives which obviously gets passed on to Consumers you can look to gas being hedged in utilities which obviously gets passed on to Consumers and then you can look at other transactions there's a provision under the rule called sft uh which allows institutions like ours to borrow Securities from pension plans and give them cash that increases the returns it allows them to use their assets to increase the returns Capital would increase by eight times for those types of transactions which would make them unattractive and therefore would diminish the ability for pensions to access that tool to increase the returns than thanks thanks sir Scott Senor Reed from Rhode Islands recognized thank you very much Mr chairman at first let me all U thank you for your support of our military men and women uh they are superb and their spouses are superb so thank you for helping them out uh with respect to the uh legislation that we passed several years ago the military Lending Act I think the key aspect is the 36% interest SC um and I think it's such a critical aspect that it should not be just uh a province of military personel but every American uh I think uh essentially uh your Banks collectively have made about $219 billion in profit this year and I believe your credit cards are not Beyond 30% so the 30% 6% rather interest range seems to be very uh appropriate and so I can go down starting with Mr sharf would you support a national 36% interest G Senator I appreciate um uh your thoughts on this one I think we would be concerned about setting a flat number uh without really understanding what the impact could be in different inflationary environments M monan Senator um it's not really relevant to us we don't we don't engage in prime lending I think as Mr sh said it's a question of balance what would be what would it push outside the system uh what would it make not available and I think but it's just not a relevant question for us because we don't have rates that high well I guess in a general sense it's relevant because most of the people who uh use this adversely are payday lenders and rather dubious operators who will induce uh borrowers into Arrangements which are something you wouldn't even tolerate so I think it's we've reached a point now after several years of questioning you all and I'm not a picking on you Mr Monette uh to come to a conclusion and I think the cusion is it should Mr Diamond please yeah we don't engage in that I completely agree with your intent I think there should be a focus on payday lenders and uh Check Cashers and certain things like that I would just and we love to help you design it so accomplish the attent without any bad consequences there are some people make very small loans who it may stop them from doing that and actually push people into payday lending Mr fr please uh senator thank you for the question we applaud the intent of what you're trying to do um I think as large Banks we're very mindful of our responsibilities in protecting uh our customers from abuses um experience has shown that caps diminish um access to credit um can do in the systems and the the Federal Reserve has a study to show that and so I think similar to my colleagues we believe there are other ways to achieve the intent but uh we'd be supportive of following up with the onow Mr O Handley Senator we don't engage in consumer lending but we do support uh what you're trying to achieve there thank you sir Mr Vince Senator uh we're also not in the consumer uh business but we support the intent thank you this is all we have a very very small business in the consumer area but we support the intent thank you I support it Senator um for normal what I consider normal Economic Times I actually came to this country and borrowed at 24% so not quite sure 36 I found that particularly heus but uh turned out okay uh but no I think uh anybody who's forced to borrow 36% that's sort of unforgivable I was living in the United States when I was borrowing at 24% and in fact I recall we had to repeal the rhod island um uh legislation uh because it was 21 % so uh again I I I hope to work with you on this because I think it's very important and uh I don't think it'll cause the disruptions which you might anticipate I think it can be done and I think the other thing you should be done and I know you many of you are doing it is uh to go out aggressively and start getting people banked uh one of the reasons that they find themselves borrowing money from uh unscrupulous characters is because they have not been fully introduced to the banking system understand that it's relatively easy and it's much more um appropriate than some of these other arrangements U but thank you all and we'll continue to work and any advice I'd appreciate thank you thanks Senator Reed Senator rounds of South Dakota's recognizing thank you Mr chairman and I appreciate the plug for our bill together we do things occasionally on a bipartisan basis even in the Banking Committee but we also have an opportunity once in a while to disagree and sometimes that means that we get to have you folks participate in that disagreement process today you're going to hear us talk a lot about consumers as they are the latest victim of heavy-handed Washington bureaucrats in the last few months alone Financial Regulators have put forth or finalized regulations and guidance that represent the biggest rewrite of banking regulation since the passage of Dodd Frank we've seen regul ations on Bank Capital long-term debt resolution planning the community reinvestment act and climate risk management just to name a few however we know that none of these regulations exist in a vacuum Vice chair bar said himself that the Basel 3 uh endgame proposal is and I quote projected to raise capital for large Banks this may result in higher funding costs but this is only half the story end of quote I want you to help tell the other half of the story now I had originally going to I was just going to ask this of one of you but since our chairman has kind of set the example of asking folks to raise their hands and I'm going to apologize in advance because I think folks hate to be put in that position I think it's critical that you get to tell the other half of that story none of you raised your hands when you said that it would be that that it was a case of where you couldn't meet the capital requirements the issue is what damage it does to the economy when you're expected to raise that and the folks who need that Capital so here's my questions and I'm going to ask you to raise your hands I apologize for that but if you agree with these assessments would you please raise your hands do you believe in its current form could these regulations negatively impact firsttime home buyers do you believe in its current form could these regulations negatively impact those saving for retirement do you believe that these regulations could negatively impact our farmers and our ranchers and do you believe that these regulations could negatively impact small business owners see this is the rest of the story sometimes we think that we're just beating up on the big Banks but the bottom line is it hits the American Consumer where it hurts this is at a time that when they try to go after the big guys it's the American Consumer that will suffer you can already see the signs of consumers struggling as they are utilizing the buy now pay later approach to products and making late payments on credit cards this is because Americans are paying more per month just to get by since president since President Biden took office Biden nomics has led to a family of foreign South Dakota needing to pay over $900 more a month just to get by for normal living expenses I'm going to say this again regulation does not exist in a vacuum and the Federal Reserve must take this into account as they work towards finalizing their Ru making I won't embarrass you by asking you to raise your hands anymore I apologize for that but I think it's important that the American people see the rest of the story and who is really going to pay the bill for this overzealous approach and without finding out the rest of the story about these types of regulations and who really gets stuck with it in recent years US federal debt levels have climbed further and annual an annual interest on the debt is slated to reach over 1.4 trillion dollar in the next decade almost outnumbering all discretionary spending I'm concerned about what risk Rising indebtedness poses to the economy according to recent estimates by your institutions the treasury will conservatively need to issue 20 trillion dollars of debt in the coming decade I'm not only concerned about who is going to buy this massive issuance of treasuries but with a federal funds rate of 5% the federal government is going to be paying even more to borrow as treasuries with near zero rates mature Mr Solomon how could sustained high levels of debt have adverse effects on the US treasury's market the dollar and the general economy thank you for the question Senator um this is uh this is a significant issue and one I tried to highlight in my opening remarks the growth in the US treasury debt has been very very significant over the last 15 years uh it's more than tripled uh that debt will continue to grow as the cost of refinancing uh that debt will also grow the office of budget management looking out through the decade estimates 3 and a half% cost to refinance the debt but I certainly think there are scenarios where that cost could be higher um you know this cost obviously hampers our ability to invest in other things you know as a nation that we need there certainly is a lot of attention and focus on things that are needed to strengthen our economy to strengthen our society and the cost in that burden of the debt to Future Generations based on decisions we've made is something that we're going to have to get focused on as the cost of debt goes up it certainly can create volatility and and our funding treasuries that can create volatility in the treasury market one of the things I'm also concerned about when I look at bosel 3 endgame is one of the impacts is to a business called Prime the business of prime finances institutions Securities positions so asset managers investment managers Asset Management platforms that regularly trade in the treasury market provide liquidity to the treasury market and the cost of the financing that they have to finance those positions would go up with this proposal and it could potentially therefore impact liquidity and so that's another risk that I think we need to look at carefully Solomon Senator tester recognized from Montana yeah I want to thank the chairman rank member for holding this hearing I want to thank the panelists for your testimony and for being here today uh and I also want to Echo Senator Reed's comments on your support for the military both active duty and and and Veterans uh them and their families is very very important I serve as as the chair of the defense Appropriations Committee I spent a fair amount of my time thinking about National Security how to protect against folks want to do this nation harm terrorist organization as well as foreign adversaries you all have responsibilities including legal responsibilities to make sure that you're preventing hostile governments like Iran that would like to see the US not exist from financing terrorist operations and other illegal activities with funds that have gone through your institutions so uh this would be a question for Mr Gorman and then not for any particular reason it's just he's right in front of me and then if you any of you would like to add you can so the question is how are you as Chief Executives making sure that procedures are in place and that they're followed so that your institutions do not end up inadvertently financing elicit activity uh Senator thank you uh for the question uh obviously it's critical uh as uh a good player in in this country to do our best to work with the government uh there there are two things that I just point out the first is what I call our uh cyber security efforts to understand incoming into the financial system uh several years ago when I started this job I believe we were spending about $50 million on that activity the number is closer to a billion dollars now uh we work very closely with all the intelligence agencies ensuring that we have a proper cyber command to keep the financial system safe and then secondly as it relates to specific spefic individuals Bad actors governments uh we have an enormous uh compliance effort focused on anti-money laundering to ensure that they don't get in uh by verifying the source of where their funds come from uh obviously we deal with uh not as many clients as as some of the institutions here but we still have over 18 million individual clients and many many tens of thousands of institutional clients so it's it's an extraordinary effort uh with uh several hundred employees constantly working interestingly I think the advances in AI uh will be a real strategic weapon in this regard very good anybody have anything different to add all right thank you along those same lines on anti uh money and laundering protections and national series saf guards Mr Gman talked about cyber security Mr Solomon would you like to add anything in regards to anti-money laundering protections that you have um I don't have uh I don't have anything to add that's that's materially different from what uh Mr Gorman stated an enormous Focus we file thousands of SARS in the course of our compliance Department's Financial crime team you know working every day um but no no difference in that focus and the intensity of that Focus very good um early this year uh Mr sharf Wells paid nearly $100 million in penalties to the fed and ofac for violating sanctions against Rank and Iran Syria Sudan um I think we we can all agree that's not a good thing um uh but what is your bank doing to make sure that these sanction violations uh never happen again sure Senator um preventing Bad actors from abusing our services is a top priority we have extensive systems in place uh that we're constantly looking uh to make sure that they're as complete as they possibly be uh we work in Industry groups we work with the government and we work with The Regulators uh to make sure that um we're doing everything we possibly can to prevent that abuse thank you um this goes to um the non-banking world um some of you have talked about the fact that um and maybe all of you talked about the fact that this will force uh BOS will force um money to go outside the traditional banking system into the unregulated banking system um Miss F Miss Frasier could you just talk about what kind kind of um impact that you see that having from a um I don't know if you can project percentage of money that you would see going into the non-banking system but it would be interesting because I remember in ' 08 that was the problem one of the problems yes Senator uh we are worried about the migration of financial activities into the non-banking sector particularly in a period where there is tremendous technological innovation and M making sure that we maintain the safeguards that we all invest billions of dollars in a year be it anti-money laundering be it fraud protection be it cyber protection all of these areas protect the American Consumer protect the American saver um Safeguard the system and also the critical role that um all of our banks play in the Global Financial system as a strategic asset of the us so we are we are very concerned that this will undermine some of the Str strength um and foundations of uh the unique American Financial system uh thank you all thank you Mr chairman uh thank you Senator tester Senator Tillis of North Carolina thank you Mr chairman thank you all for being here and for the uh the preparation I'm actually very pleased I thought it was going to be the annual fogging of the GS but people are asking very serious questions I'm glad to hear it I've got a few serious questions for you all number one uh I want to start uh by saying that thank goodness you're not the head of a fin thank goodness you're not the head of an organization that's had an expose on a culture of sexual harassment and workplace hostility because I guess if you were every person up here would be asking for your resignation including me but we've got a top Financial regulator that gets a pass I don't expect you to respond to that but it's true that same Financial regulator has implemented an SEC cyber reporting rule that now we have evidence that the ransomware companies are exploiting right okay this is a mandatory cyber reporting U requirement that now a ransomware company has gone on record as reporting I don't even want y'all to respond to that but we've got in in uh detailed questions we're going to ask you what impact this is a 4-day reporting requirement a national security waiver that you have to reapply for every 30 days and it has to be approved by the Attorney General these people are out of control we've got to try and repeal this one I'm actually putting forth my first CRA to try and do that next week hopefully the C can see that the bad guys are exploiting a rule creating a burden for our financial services industry and not producing a good result that's all on that I want to go back to the the operational risk question and I and I think that uh Senator rounds did a good job of saying this bosle 3 ingame is bad it's not very well thought out and hopefully it's going to look very differently before it gets promulgated but uh who would like to speak for this group around the impact on op operational risk just one more time and how we think that they've missed it in terms the the benefit Mr Gorman if you could do it in 30 seconds I would appreciate it it it makes no sense I mean that's the the bottom line I've been at this for a long time I served on the New York fed board for years I've seen a lot of rules some of them make sense and it's question of how far you turn the dial this doesn't make sense you shouldn't punish institutions for creating fee based businesses is there any evidence that uh that work has been done to really understand the fully burden cost and the impact of this rule on the indry and more importantly people like my dad who would get 90-day notes to to fund his construction job that I used to work on is there is there any anything out there that I've missed in terms of The Regulators actually doing an exhaustive study of the impact and the downstream implications are you aware of anything that I have just simply not read I'm not aware okay thank you Mr Solomon would you go back to the the I think you mentioned sft Security Financial transactions can you go back and talk a little bit about why people in the pension business should be worried about the promulgation of this this rule in about 30 seconds sure Securities financing transactions are transactions where institutions like ours uh borrow stock Securities from pensions we pay them cash they can then invest that cash and earn Returns the capital in bosel 3 attributed to those transactions goes up by eight times would make the transactions uneconomical for businesses like us so we would exit that business that would then prevent the pensions from having that ability to increase the returns through that activity so anybody who is sitting on top of any sort of pension management should understand that if we implement it in its current form their returns at least in this segment are likely to go down they are an end user that would be impacted yeah okay um let's talk more about uh just the uh I want to talk I actually have to get something off my chest because I've heard more I'm kind of doing that uh y'all may have noticed but um I I understand that you are are are gaming c car that that somehow uh that that you can gain stress testing that's what I'm hearing from Regulators I'm hearing from my colleagues on the other side the give me an idea of how you game gain the system I actually thought that this is a regimen that's provided by a supervisor an examiner and you've got execute it and then they have to measure it is that how it works uh any of you here uh want to share with me how you how you gain the syst I used to work at Price Waterhouse we we didn't have a practice on gaming c car stress testing at the time have y'all cracked that code how many of y'all think it's absurd to think that people would actually assert that you could game a stress test okay how many of you think that you're spending more time and money on trying to toh satisfy stress test requirements at the expense of looking at real risks that are unique to your your banking activities I'll take this one okay Jame the C car test is 200,000 pages long most of us do 10 20 30 40 50 tests a week we're quite worried about risk it's one test it's to the nth degree uh it's a big black box so we all agree in stress testing that thing is just out of control yeah and and you know in closing look Silicon Valley was a disaster it was a fingerprint it was unique in terms of their activities it was a failure of uh Supervision in my in my in my opinion and one thing I hope that we have over the next year is a hearing on everybody who was in the loop who failed to protect the investors and the depositors at Silicon Valley thank you Mr chair thank you Senator Senor mandez of New Jersey is recognizing thank you Mr chairman uh for over a decade the cfpb has stood up for everyday Americans and fought back against abusive and unlawful practices by large businesses including some of the banks in this room Mr Diamond how much money has JP Morgan Chase returned to customers in the form of redresses and payments of the direction of cfbp I don't know the number let me help you three 360 million Mr moan same question I don't know the number specifically 819 million M Fraser uh I don't know the number either Senator one billion Mr sharf I don't know the number Senator well it's over two billion so from just the four of you that's over four billion it's amazing you don't know the number because they're not small in nature over4 billion do returned to hardworking consumers in the past Dozen Years and yet this critical agency is under constant attack by my Republican colleagues the law suit before The Supreme Court is threatening its very existence and time and time again we've seen why the cfbp is so necessary uh and why intend to continue to fer it otherwise that would have been $4 billion dollar out of the pockets of us consumers now while some banks have either decreased or eliminated overdraft fees altogether in large part due to increased scrutiny and oversight Banks still collected an estimated $7.7 billion do in 2022 in overdraft and non-sufficient fund fees Miss Fraser your bank eliminated overdraft fees last year isn't that correct yes Senator uh is it fair to say that city is still a profitable Bank yes Senator uh did overdraft fees upend your business model uh no Senator we work hard to uh protect our c customers and make sure that they don't fall into overdraft now the rest of the banks here that have retail operations continue to my knowledge to charge overdraft fees Mr moan Mr sharf Mr Diamond you're all aware that Black and Hispanic households disproportionately incur overdraft and NSF fees correct do you simple do you know that yes or no can could you give me an varable answer please I believe so if that's your statistic I I don't have any reason to Cheng same for me well the the reality is is that again it's it's amazing you you don't know that study after study have shown that the answer is yes to that question so I suggest you call Miss Fraser after this hearing to figure out how you can still be able to eliminate the fees in its entirety and still run a profitable Bank charging the fees is a choice one that disproportionately harms black and brown communities and it's something that you could do that would change the course of events for a significant part of the consumer base uh the lawsuit currently before The Supreme Court over the cfpb's funding structure has the potential to upend every rule guidance and order the cfpb has ever issued tossing over a decade of Consumer Protection Law out of the window window that's not just harmful for consumers I think it's dangerous to the financial system the cfpp doesn't just issue regulations they also provide Safe Harbor Provisions like the qualified mortgage rule which protects mortgage lenders from certain lawsuits Mr sharf Mr moam Mr Diamond Mr Fraser if you were to lose this Safe Harbor would it impact your bank's mortgage lending I I don't think it would make a difference we we did mortgage lending before this we do it afterwards I think it completely depends on the actual detail on the ruling Sam I'd I'd like to know the specifics to draw a conclusion um the same as my colleagues I'd need to understand the specifics more well I'm saying if it were just Lo if you if you would lose it not if it's qu limited or if you would lose it totally it seems to me pretty remarkable based on previous testimony of how important the Safe Harbor Provisions would be to Banks mortgage lending abilities that you would suggest that it would have no effect whatsoever we're already in the midst of an affordable housing crisis and eliminating the cfpb and such a rule would have a disastrous impact on the mortgage market and make it harder for families to buy a home finally uh the number of physical Bank branches in the US have been trending downward for some time this has left more and more residents in so-called banking deserts facing difficulties in carrying out basic Financial tasks such as paying bills and depositing checks a Philadelphia Reserve report found that bank closures during the pandemic resulted in the number of banking deserts in the Third District states of New Jersey Pennsylvania and Delaware rising from 48 to 63 now I understand part of this is mobile and online banking but there are many who do not have uh the abilities to do that what are some ways that we can ensure communities continue to have access to basic banking services two things Senator I think if you look at the people have big Branch systems we maintain um approximately 30% of our branches uh Mr Shar said earlier was same for us in LMI neighborhoods but importantly one of the things that's gone on and you mentioned is we're up to 97% of our LMI customers use digital banking which then is more convenient more safe and reaches them where they are and and so we manage that uh carefully to make sure we cover every market and make the calculations you can see that in the publish statistics but if you look at what we do as in a group of Institutions we maintain that presence but we've driven the digital and we've driven the types of accounts that are are more more appreciated that's why we're bringing 2 million people into the banking system that un banked a few years ago it's largely these larger banks that driven that well i' close by simply saying I I would commend to all of you that you look at how your practices affect particularly minority communities including on this issue you have a disproportionate effect and there's something you can do about the largest growing parts of the American society that would be beneficial to you and beneficial to them thank you Mr chairman thanks sen manand Senator KY Louisiana is recognized well that's really good unlike some I do not think you are Crooks in fact um You're All American companies and I'm and I'm proud of you and I thank you for supporting the most sophisticated and Powerful economy in all of human history and the jobs you create for Americans in doing it Mr Diamond since the last time the federal government raised your bank's Capital requirements in dodf Frank and um otherwise have you had a depositor run on your bank uh we have not have you failed a stress test we have never failed a stress test no have you ever reached a point where your liabilities were greater than your assets absolutely not well unfortunately we we've had three Banks this year that did go broke MH they're midsize Banks um you know them signature Silicone Valley First Republic we've held earrings in my judgment they went broke because their management did really stupid stuff and because the FDIC and The Regulators who were in charge of the keeping them from doing stupid stuff sat there like bumps on a log sucking on their teeth and watched them do stupid stuff and in many cases had to turn to you to clean up the mess now In fairness to the FDIC 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 are abusing young women who went to work for the FDIC the FDIC chairman told us recently yes he knew about it it happened but he wasn't the chairman yet and didn't have have the authority to stop it Mr Diamond don't you find it ironic the FDIC is is now turning to you and saying you know our track record which is blemished at the FDIC your bank isn't broken but we're going to tell you how to fix it do you find that ironic they're going to tell you how to fix it based on standards put together by bureaucrats in bosel Switzerland not by the United States Congress do you find it ironic that they're telling you this and proposing this isn't that kind of like being given uh gun safety advice by Alec Baldwin so I should I answer the question so um the the major risk of those Banks was hiding in plain sight which is interest rate exposure that was known to most people who actually couldn't read a balance sheet and read their uh financial statements that and that's true I also think the FD said they didn't know they were busy doing whatever else they were doing at the uh at at at their gamor of carnal abuse over there yeah but also do think you're making a good point that the some of these rules were put in place and some folks have mentioned here are pushing business outside of the banking system and to point out exactly what that is it's almost 80% of the mortgage business today it's half of the leverage lending business today and it's a bunch of other things which you know people don't actually see about the plumbing of the system and I do think it's adding risk about transparency and a very important thing about the the impact let me stop you Mr Diamond because I'm going to run out of time how is this even legal under under West Virginia vepa you you have Bank Regulators without clear direction from Congress who are barring standards from other Regulators in Boston Switzerland imposing them on you without clear directive from Congress it's clearly falls under the major questions Doctrine why doesn't this violate West Virginia versus ebaa EPA you don't have to know a law book from an LL Bean catalog to see that why doesn't it violate the law anybody Senator Senator Kennedy's time has expired senator from well M Fraser was about to answer oh well would you like to answer Miss Fraser I thought you gave her time proceed please um I think we very much appreciate um your your points of view Senator on this topic and I think many of us would concur while um violations of law we hope are things that we will debate as a last resort um we would be prepared to do so because it's important that there's Clarity in the law um and that we abide by it thank you Mr Senator Warner and thank you Mr chairman I I do find it's kind of an interesting presentation the ying and yang of whether um you're the source of all challenges or The Regulators of the source of all challenges somehow I don't believe either presentation represents the truth and my questions on Basel 3 have have been been raised already I've indicated um I think the timing at this moment uh is very problematic with with uh interest rates as high as they are and obviously members of the Civil Rights Community have raised this as well but before anybody smiles too much I got also tell you that I get extraordinarily frustrated that anytime there is any proposed new regulation or rule the normal in reaction is oh my God the sky is falling and the same response is always you do this it's going to limit access to Capital on Main Street and I I actually do things Senator mendez's presentation particularly on cfpb in terms of dollars returns was pretty good but I I want to actually um um go to an issue that I've raised with many of you in the past which is I do believe before we add new regulatory tools about the safety and soundness of our system one of the things we actually ought to use better is some of our existing tools very beginning when the Fed was stood up the most important liquidity tool was the discount window and use of that tool and yet we saw with the the banks that failed this year particularly in terms of svb and signature they didn't even have procedures in place to know how to U utilize that tool so I think I'll start with Mr monan on this one but um I know the there was guidance given out this past July to say everybody ought to get get their act together and can I don't have a lot of sympathy because of of the concern that many of you and other colleagues have raised that oh my gosh this if I go to the discount window that's going to raise a stigma with the market well you can't complain about new regulations if you aren't using existing tools so beyond the guidance that was given um I'm why shouldn't we have maybe on some kind of random um basis uh a mandatory use of the discount window so that we could start erasing that stigma to make sure that every Banks from large to small know how to use it because at least in terms of liquidity this would be the most powerful tool of all Mr onean so Senator I think two things one Readiness to use it and I think you'd find that the institutions all here uh because of the amount of Regulation we have are are ready to use it and that was an issue of Readiness that you Rose but then the second question is a stigma and I we couldn't agree more whether it was in 7 and 8 whether it was in in in 2020 or whether it was was last spring every time a crisis hits one of the core roles of the reason why the Federal Reserve exists is to provide that liquidity at a time of stress in lender Last Resort and every time we're 100% reluctant to use it be as an industry because it looks like we're weak and we we've got to figure out a way to take somehow again and and that's again where I think you see folks on my side of the house complain complain that you know if you're not using existing tools well maybe you got to look at new tools and I would love to engage with I'm going to put legislation forward that would require some mandatory usage and maybe again how we do that on an episodic basis but just saying we know there's a stigma problem but we don't have a a plan to address it means it's somebody that might be sometimes sympathetic to you if we can't use that tool my sympathy is going to go out dramatically we agree with you let me let me try to hit a couple of other time artificial intelligence I know has been touched um I personally am am surprised that there is not great greater concern about AI in terms of using its ability to disrupt uh faith in the public markets um to me it it feels like if there was ever a time and a tool that has such wide reaching implications uh that ok which I know his record has been somewhat mixed but uh I strongly believe ESO ought to take on the responsibility around looking at artificial intelligence in terms of safety and soundness to the the overall system is Frasier we've talked about this a little bit what do you think on that issue um thank you Senator you're raising very important issue in topic that has all of our attention at the moment um when we look at artificial intelligence it's both an opportunity and a threat on balance we all hope it will be an opportunity um to improve the the strength of the financial system and and of human beings but the threats are are are also quite considerable we have a lot of uh regulation that is in place right now now that works very well to safeguard our financial system uh we think that regulation should continue to be used to guide just say I know make times up but I just I do think fsock is a tool and I would make the case and as others have made the case about underserved communities some of you are participating in The Economic Opportunity Coalition and some of our efforts with cdfis that is still a tool to get into elmi uh communities those of you who are not participating this is bipartisan led by SEC deputy secretary Ari of the administration I hope you'll consider it thank you Mr chair I'll yield some of my time to him sen you have no time to yield Senator Hagerty of Tennesse I tried Warner thank you Mr chairman um and and to all of you welcome I know how much you must look forward to these meetings that we have here um but today my colleagues have focused a great deal on the basil 3 endgame it's something I'm deeply concerned about about too what we have here in Washington regretfully are Regulators that are in a competition with bureaucrats and other jurisdictions they seem to be regulating for regulation sake um I have a very difficult time uh when when massive bodies of Regulation are put forward and bureaucrats here try to tell us that the impact is going to be minimal uh I'd like to quote specifically from Vice chair Michael bar who's leading the effort on the basil in-game he says that the impacts of the new requirements they're proposing are going to be minimal in fact specifically he says quote the phase in will allow ample time for banks to adjust their balance sheets and activities and to build Capital over time in fact most banks already have enough Capital today to meet the new requirements so the message that the public is getting is that uh these massive regulatory proposal they're putting forward with basil 3 is going to have a very minimal impact on your Banks and I would just like to go back to the tool everybody else is using would anybody here that believes that the impact of Basil 3 would be minimal raise your hand please I'd like the record to reflect Mr chairman that nobody raised their hand No One Believes that the impact will be minimal um in fact I think one of the most infuriating patterns of behavior I see here among the regulatory class in Washington is either an unwillingness or refusal to take into account the KnockOn effects of the regulation Mr Diamond I'd like to come to you you your bank has stated publicly that the basil iname proposals would increase Capital requirements by some 50 billion dollar that's not an insignificant number they're obviously very real costs that are associated with this proposal and I would like to get your perspective on how this proposal would impact not only your bank but the markets and the economy more broadly I think um you know inside a bank you try to look at every loan you make and every relationship and every client and every country and obviously you want to do a good job for your sholders in the long run no one tries to be repati with customers or or employees in the short run and that uh so would it take a lot of loans and immediately make them unprofitable I'll give you a specific example mortgages I've already told our people that mortgages should not be in the balance sheet and of course we can't securitize them either because we haven't passed the securitization law so it will diminish certain kind of mortgages it'll particularly diminish mortgages for lower income people and because the cost of all this is actually much higher on a $150,000 mortgage than a than on a jumbo $2 million mortgage and I can go down the line cdfis Financial companies Farmers uh and then we've already mentioned the extreme effect on Market making which is just a critical function uh to help finance companies around the world and help people manage money for retirees and Veterans and uh and state pension plans to manage their money and so that and that one we is hard to forget the full extent of that I think it actually may cause issues in the marketplace all these knock on effects I think are very negative Mr Fraser not limited to your bank in particular but just if you could comment on how this impacts US banking systems competitiveness on an international basis uh this diminishes the US um banks in um competitiveness on an international basis I think as we've all reflected US Financial system is the Envy of the world the US Banks play an incredibly important role supporting multinationals and supporting uh the Western Financial system and its operations it's a strategic asset of the US indeed indeed and I think it's incredible in competitive Advantage The Regulators that are focusing on basil 3 seem to be hiding behind the claim that this is merely harmonization of capital requirements and when you think about a harmonization of capital requirements it would lead you to believe that us banking capital is somehow below that of our European competitors uh and if that were the case this might allow Regulators to prevent quota race to the bottom but but this is not the case I want a quote from chairman Powell chairman poell says quote The Proposal exceeds what is required by the basil agreement and it exceeds what's been required and what's been done by through implementation by other jurisdictions so Mr Solomon I like to come to you you made reference in your testimony about the competitive disadvantage that this unnecessarily stringent proposal would create for financial institutions for the economy more broadly um and would you mind to just comment on how this proposal if it were enacted would compare us would would would compare us to other jurisdictions you're dealing around the world but how it would make us our competitiveness be affected in capital markets specifically versus other nations thank you for the question Senator um you know as you stated the capital requirements uh in the Basel 3 normalization in the UK in Europe and Japan and in other jurisdictions are meaningfully less significant than what's being proposed here and so if you look at activities that we compete in around the world particularly and Market making uh and those types of activities the US capital markets are the strongest Capital markets in the world I think it's one of our big competitive advantages that everyone comes from all over the world into our Capital markets if you think about IPO activity and debt Capital raising it's stun to a great proportion for international C for international capital in our Capital markets on a relative basis and this would just shift that that balance it would push more activity into other jurisdictions it would make Banks and other jurisdictions more competitive um and I don't think that strengthens the US position over time and conversely American banking system less competitive as well thank you thank you very much Mr chairman Senator Cortez masto NADA is recognized thank you thank you Mr chairman thank you all for being here I know the last time you were here we talked about affordable housing I want to continue the conversation uh as we know not just nevadans but so many people across the country are struggling to afford homes one way to do that I believe is by investing more in affordable housing through the federal home loan bank system um and as we all know the federal home loan Banks uh enjoy Federal benefits that really no other bank has access to in exchange for supporting affordable Housing and Community Development Across the United States last month the federal Housing Finance Agency published two reports I called for them exploring whether the Federal homean Loan Banks hundreds of billions of taxpayers supported dollars are being well used for affordable Housing and Community Development the answer according to this report was no federal home loan Banks currently only provide about 10% of their net income to affordable housing I again believe that's too low my question to all of you is do you think the federal home loan Banks should provide 20% or more of their net revenue for affordable housing or Economic Development and does really does anyone not support uh greater affordable housing investments by the federal home loan Banks so let me ask you this um let me just for the record uh nobody has said they don't think there should be more Investments so you think there should is 20% enough is 20% more what more should we be looking at properly done 20% would be fine does everybody agree with that 20% would be fine does anybody not agree with that good all right good start and I'm trying to do this so you don't have to raise your hands I I don't like that either I think that's kind of ridiculous um let me say this uh the federal Housing Finance Agency is proposing to adjust dividends and Advance rates to better reflect the bank support of affordable Housing and Community Development does anyone not support having the federal home loan Banks dividends and advances tied to missions activities of financial institutions is that a good start for us as we are looking at this does anybody have any comments regarding that and concerns so it is a good start from what I'm see the nods of all of your heads great um next question fhfa has recommended that 10% of all institutions assets be held in housing assets 96% of Credit Unions would meet that test but likely not some of our biggest banks under the proposed new policy would any of your institutions invest more in housing to retain access to Federal Home Loan Bank funding questions thoughts ever thought about it still need to think about it I I think many of us meet it today but I think Senator that the trick is going to Mr Diamond's last point is if some of these rules change we'll have to shrink our mortgages on balance sheet which would make us less eligible and less able to uh live up to the principles you're doing which is how much housing can we help drive and so I think with everything balanced but a lot of us meet that test today uh because of our our business Constitution so the concern is if new CH changes in the rules might have a a negative impact in what we're trying to achieve here at the end of the day mortgage loans are tricky to hold and if you make them more Capital intensive they're going to be you know less profitable and therefore going to hold less of them and already 80% of the activity goes on outside the financial institutions today and so this so I I think we these rules May frustrate your intentions of what you're trying to do with with the federal Home Bank boards and so we applaud that we think more affordable housing but you might be frustrated on the other side so I think that's the kind of thing we worry about helpful thank you I own to one other uh item around affordable housing uh currently in southern Nevada in Clark County which is the most populated part of our state Clark County is looking at new ways innovative ways to build more affordable housing uh one of those is really looking at um Landress uh federal land trust and the challenge they're having is they're not able to get any of uh the banks to write up the loans or the mortgages for uh these land trusts and and here's what I know for for decades and and this is what I want to talk to you about for decades banks have invested in apartment buildings that are deed restricted to require affordable rents but in Clark County so far not a single bank has been willing to meet uh Clark County to discuss providing mortgages for deed restricted Standalone homes on Federal Land that's the key here is the federal land uh I I've worked hard to make sure uh more federal land is available for housing it's frustrating to see that unfortunately the banks refuse to offer mortgages to new homes on Federal Land um the Clark County Land Trust has been looking for mortgages for 240 permanently affordable homes since August Clark County has 2.3 million people it's the top 30 largest metro area in the country the county has a A doublea plus credit rating so I guess my question is what are we missing here from all of you that we need to be aware of why we can't get a bank to come work with us on these land TR I would love to get a team working the detail of that because I don't understand why that would be true unless there legal things about collateral ownership or something thank you thank you Mr D I appreciate you know my time is up thanks Senator Senator Vance W's recognized uh thank you Mr chair and uh thanks um thanks to the the CEOs for being here uh I know uh a few of you personally and I admire all of you but one of the things that I've expressed in private uh and also in public is my concern that the American political system is infecting the American Financial system and frankly the American cial system is infecting uh the American political system this is a graphic compiled by my staff which lists the ways in which your financial institutions have gotten involved in major political debates of the last uh few years things like the Georgia voter identification law things like whether to lend to fossil fuel based companies things like guns and abortion I should say of course that we all have our opinions on matters of public policy Senator Cortez m and I disagree uh but the difference between Senator Cortez massu and I and all of you is that the people of our states elected us to do public policy nobody elected you and so my Council and my line of questioning is going to be very focused on this particular issue stay out of public policy unless it affects your core business interest because if you don't it's going to be a lot harder uh for us to see you guys as neutral Arbiters and neutral actors in The American Financial system it's going to be much easier for us to see you as as political actors I want to focus on a couple of issues just because I think they highlight the absurdity of this and that will lead me to my questions Georgia in 2021 passed an extraordinarily moderate voter identification law six of the eight of you immediately issued statements criticizing the state of Georgia to that effect or at least your institutions issued statements to that effect now I should point out that New York has a voter identification law a much more stringent voter identification law than the state of Georgia did any of you issue statements criticizing the state of New York for their voter identification law show of hands let the record show that none of you criticized g New York for a more stringent law but you jumped into a culture War Over Georgia I can't possibly understand why something that's more concerning to me because it affects my constituents in the state of Ohio is a lot of your approach on energy policy we have seen over the last 18 months the consequences of of reducing American Energy Independence it empowers very bad people all over the world it also impoverishes and amerat some my constituents and destroys their job uh I'm not picking on you Mr moan uh you I think you're the only bank that has a red X on every single issue this is true of most of you but I want to ask you this question about energy policy in 2015 Bank of America committed to cut off lending by 2025 it's just a couple years from now to companies earning 25% % or more of their revenue from thermal coal mining now that decision and some other decisions that have been made are raising the price of energy on Ohio consumers and imperiling the jobs of those who work in the energy sector why are you doing this did the government make you do it and if not why are you doing it uh M Senator Vance just to be specific that was a statement about mountaintop removal policy I grew up in Southern Ohio where there it was called strip mining back then sure my next door neighbor was engaged in the business and the statement we made was we would not continue to fund people who would continue to take the tops off of the mountains and the Appalachian Mountains and turn them into mines and that was based on our assessment of the risk at the time so you guys have taken a number of other energy uh policy decisions that raise the cost of energy in American consumers uh you guys have committed to a net zero standard by which effectively there are no Net Zero carbon emissions and you've held your client to that standard saying that they need to become aligned with Net Zero and we plan to be the adviser of choice to our clients in this transition so it's not just that particular decision Mr moan and again it's not just Bank of America my point here is is pretty straightforward and simple which is that whether we achieve Net Zero and when we achieve Net Zero is a debate for the elected representatives of the American people what kind of voter identification law we have is a decision for the elected representatives of the American people and every time you guys get involved in these cultural War battles it makes it harder for the American people to see you guys as neutral financial institutions and it frankly makes this harder uh for us to to do the same so I I will leave you with with just this thought you've heard some very good line of questioning on basil 3 I agree with Senator Hagerty about basil 3 I don't know what uh some of the Regulators are talking about doing I don't think it makes a whole lot of sense um often Bank CEOs and other financial institutions will come to Republicans for more reasonable regulations for lower regulations for lower taxes to fight it back against things like basil 3 I guess my point is if you guys are going to use the financial power that you've accumulated to go to war against the values of our voters impoverish our constituents who rely on cheap energy and destroy the jobs of people who work in the energy sector why should we listen to you when you come and ask us for a tax break or for reasonable regulations I'm one Republican who wants to have a good relationship with you but the more you guys insult yourself into these fights the less good that relationship will be thank you all for being here thanks Senator van Senator van Holland of Maryland's recognized uh thank you Mr chairman and thank all of you for being here today as many of you know I'm a big fan of cdfis um and MD as vehicles uh for getting Capital um in into lower income areas to small businesses um in places like like Baltimore Baltimore really needs that ecosystem of cdfis and mdis uh and as interest rates go up of course um the cost of borrowing goes up for everybody but often it's these entities that are hardest hit uh I know all of you are involved in one way or another with cdfis and mdis um I know Mr moan and Mr scarf your your Banks your institutions um have a significant presence in in Baltimore could you just speak briefly to um what your commitment is going forward and whether the higher interest rate um environment is negatively impacting your determination to provide support for cdfis and MD uh Senator I'll I'll start um uh you know I would say our our commitment to working with cdfis um goes through all the cycles and um it's not going to be impacted by uh the rate environment that we see um we share your perspective that the cdfis um perform a service and reach a series of uh individuals in these markets that Banks wouldn't uh normally be able to uh to access um you know whether it's the Investments that we make directly in them um uh we've talked about what we've done with uh our PPP money where a lot of it was given through cdfi specifically because they have the ability to access again customers that aren't comfortable doing business with banks um and so uh you know those those Partnerships and those commitments will continue thank you Senator we we have $2 billion invested in cdfi country and that has increased from about a billion and a half five six years ago up to two billion um and they're very interesting in the way they can help us including most recently a lot of us participates in a veterans Loan Fund where the cdfis could work with veterans to start businesses and uh that's not unique to Bank of America many of us participate in we think they can reach parts of the economy uh with counseling and other things are critical to the start of a small business not that we don't do a good job we have $40 billion in small business loans outstanding it's they grew 10% year-over year it's it's not that we all don't do a good job in that it's just that they reach it so our commitments has been there for many many many years probably since they started I just don't remember the history um and will remain solid through any straight environment well I look I appreciate that and you know I've worked with the chairman and Senator Warner and others um I chair the appropriation subcommittee that funds uh the small business administration and and the treasury when it comes to cdfis uh so I I look forward to really pushing hard on on this as a a vehicle going forward um we've had many conversations over the years about late fees uh obviously late fees and overdraft fees um have a disproportionate impact on people living paycheck uh to paycheck Aaron kleene um over at Brookings estimated that if the United States had adopted a real-time payment system in 2007 when the bank of England did um American consumers and especially the folks at the lower income end would have saved $100 billion uh and so I've been very focused on on pushing the FED to adopt the the FED now uh program we have the clearing house uh system out there as well um I I do just want to get a brief sense of where we are on as I understand um Mr Vince Mr sharf and Mr Diamond your institutions have enrolled in fed now my am I am I right about that any qualifications that's that's correct Senator I'm right okay um and I know Miss Fraser you and I had a conversation about this uh just a few days ago I understand you're working through some technical issues is that correct yes we will be joining the system all right and um Mr moan if you could give us an update on uh where where you are American Express uh so Bank Bank of America sorry American Express isn't here if you want to come next time fine with us um the yeah we we are in the process of doing the technical work as as as Jane said and so it's just a matter of time it's it's a matter of when not if and it's just going through the systems planning now all right the the more that you can do to push and get all your you know coordinate this system uh the better uh my my last question doesn't relate to banking specifically but it it does to an issue that the chairman and I have worked on over years um uh with respect to trying to close a a tax loophole on carried interest I know that you're not all directly involved but you're all involved in the finance system you understand the workings of this uh Mr Diamond if I could just ask you do you agree that we should close the carried interest loophole once and for all yes I always have I've been public about it I know I I I appreciate that I would I would would hope that we could um we would do that because it's uh it's just egregious that it's gone on for so long thank you thank you Mr chairman thank you senatal Senator BR of Alabama is recognized thank you Mr chairman uh it's a pleasure to be with all of you today thank you so much for carving out time for this um over the last year we have seen a host of incredibly complex and Market altering rules come out of nearly every Financial Federal agency interestingly five of our top Financial Regulators set before this very committee last month and unanimously told me that they believe the US banking system to be strong well at the same time they argued for proposals that could fundamentally weaken it without providing any adequate answer to the question why you've seen actions and we've seen them here from the Federal Reserve the FDIC the ooc the cfpb the SEC many of which seem to go far beyond the bounds of their Authority equally as concerning is the apparent lack of initiative by these Regulators to understand both the qualitative and cumulative impacts of all of these Ru makings for example focusing on Basel 3 proposal in this Committee just a few weeks ago Vice chair bar said the rule will have a quote minimal impact on lending that Banks do end quote now I'd like to say uh Mr sharf most I heard you earlier when I was watching say that uh you have the most rural branches of all the banks represented here and my question is can you briefly respond to that would this proposal only have a minimal impact on Wells Fargo's lending um well Senator we are going to be commenting with to the the Federal Reserve we do think there are a series of asset classes when you look at the increases in capital that are proposed um would affect both the availability of credit um and the pricing of credit in the marketplace uh and additionally um as we've seen in other asset classes uh when regulation like like uh uh like this has taken hold um uh you can see substantial migration outside of the regulated banking system absolutely thank you at the end of the day the G play a vital role in the US economy and I don't want to diminish that however I do want to focus on Downstream so impacts on let's say Alabama smaller financial institutions small businesses across the country those in manufacturing and energy sectors individuals seeking maybe a shortterm liquidity to help pay their bills I think the list of these potentially impacted goes on and on and on and on this point your banks have said that by raising Capital requirements by nearly 20% The Proposal would ultimately limit access to Capital across the board and undermine economic growth Mr Monahan can you briefly explain this trickle down effect and our banks if your banks are squeezed by the requirements of this rule what does this ultimately mean for maybe small business owner seeking a loan a firsttime home buyer or a small financial institution and let's say Alabama uh thank you Senator it as Mr Shar said and we talked about a lot today if you increase if you have the same Capital requirements increased by 20% to do the exact same activities you did yesterday you have to get a higher return and that higher return will be born by the customer base or you'll have to lead the business and either one of those is not good for the customer base and it applies across the board in fact you know the idea this doesn't trickle down through the banking system overall we provide service to a lot of those smaller Banks those costs so the services will go up to them and you know so it has much more an impact than people think right and and just quickly I know I'm running out of time I'd love an answer from all of you uh would it be an inaccurate statement to for Regulators to assume that under this threshold you know those under the hundred billion asset Mark um they have said you know they won't feel the impacts of this so my question for you is Will those institutions and people and things that I just mentioned under the hundred billion Mark that are quote not affected by this will they fill the impacts of Basil 3 just if we can yes or no down the line Mr Shar start with you ultimately yes absolutely we provide them a lot of services yes the trickle down effect is real yes it's an integrated system yes Senator that's likly yes I agree yes and last but not least if this rule is implemented as written do we risk putting the United States banking sector at a global competitive disadvantage um Mrs Frasier do you mind answering that I yes we will we already have a a unlevel playing field with the European Banks um the American Banks play incredibly important role globally in the financial system and ultimately affect the competitiveness of American compan IES this is important thank you C Senator Warren of Massachusetts is recognized thank you Mr chairman so today I want to talk about how criminals are using our financial system to move money to finance terrorists drug traffickers and sanctioned countries like Russia and Iran and North Korea our Witnesses are the CEOs of the largest banks in the United States and they deal with this issue every single day Mr moan you are the CEO of Bank of America so let me ask you if a terrorist group that wanted to attack the United States tried to move money through Bank of America accounts do you have systems in place to identify that activity to report it to law enforcement and to shut it down uh yes we do Senator okay Mr Diamond you are the CEO of JP Morgan what about you if terrorist group tried to move money through JP Morgan accounts do you have systems in place to catch it to report it and to shut it down we have extensive systems in place but no system is foolproof okay but you do have systems in place work on this every day and let me just ask all of you in the interest of time just raise your hand if you have those programs in place good I see all the hands up look I believe that none of you want your Banks to be used to finance terrorist attacks but let's be clear none of you runs these anti- money laundering programs out of the goodness of your hearts Back in 1970 Congress passed the bank secrecy act to make sure that Banks don't run a financial system that is open to terrorists and drug traffickers and Rogue Nations but time passed and the crooks got more sophisticated so after the 9/11 terrorist attacks law enforcement discovered the way terrorists had gotten around the bank secrecy act and Congress was then called on to update the laws to cut off future access and that's what Congress did today's terrorists have a new way to get around the bank secrecy act cryptocurrency last year an estimated $20 billion do in elicit crypto transactions funded every kind of dangerous criminal North Korea has funded at least half its missile program including nuclear weapons using the proceeds of crypto crime and Israeli officials have confirmed that Hamas received millions of dollars through crypto transactions including quote large sums from Iran Mr Diamond you've been CEO of JP Morgan for almost two decades can you explain why crypto is such an attractive Financial tool for terrorists drug traffickers and Rogue Nations I've always been deeply opposed to crypto Bitcoin Etc you point it out the only true use case for it is criminals drug traffickers anti-money Laing tax avoidance and that is a use case uh because it is somewhat Anonymous not fully and because you can move money instantaneously and because it doesn't go through as you mentioned all these systems have built up over many years know your customer sanctions ofac it's they can get bypass all of that I if I was the governments I'd close it down okay well that's what we're going to talk about because last week federal law law enforcement asked Congress to update the banking laws saying quote we cannot rely on statutory definitions that are decades old to address the illicit Finance risks that we face in 2023 and these law enforcement officials specifically called out the use of crypto to finance terrorist attacks now the laws clearly need to be updated but crypto lobbyists are working overtime to block any legislation they claim crypto is special and it shouldn't have to comply with the bank secrecy act even if that means letting terrorists and drug traffickers and ransomware criminals and Rogue Nations move billions of dollars totally unrestricted so I'd like to go down the line here maybe I can start with you Mr Shar do you think that crypto companies facilitating Financial transactions should have to follow the same anti-money la Laing rules that your bank has to follow absolutely Senator okay I like absolutely keep let's go on down the line Mr moan absolutely if okay absolutely positively certainly unanimous absolutely all right absolutely absolutely absolutely absolutely all right it's the word of the day you know we've got a way to do this Senator Marshall and I along with a 18 of our Senate colleagues including Senator Cortez masto Senator Smith Senator fedman Senator warau Senator Butler who are here right now and on the Senate Banking Committee have a bill that would do exactly what law enforcement asks it would extend the anti-money laundering rules that Banks follow so that crypto could not be used for financing terrorist attacks or North Korea's nuclear program when it comes to banking policy I am not usually holding hands with the CEOs of multi-billion dollar Banks but this is a matter of National Security terrorists drug traffickers and Rogue Nations should be barred from using crypto for their dangerous activities it's time for Congress to act chairman Senator D of Montana is recognized Mr chairman thank you and thanks to all of our uh panels froming here today um earlier this year we saw a series of bank failures which were among the largest internation history these failures in my opinion were due to gross mismanagement by Bank Executives and Regulators who were also asleep at the wheel instead of holding accountable those in supervisory positions respons for missing the impending crisis Regulators have decided to put forth a host of regulations that would have done nothing to prevent the failures in the first place in fact every regular I have questioned this year hearings like this has confirmed what we all know to be true that is the US bank system is strong it's well capitalized the proposals put forth by Vice chair bar and other Regulators will limit economic growth reduce lending to small businesses and for those who are able to obtain financing they're going to see increased costs you know I have frequent meetings with my businesses across Montana we are a state noted for small business I hear from them firsthand about the critical need for access to Capital the concern they have with pending regulations that could threaten their businesses I question Vice chair bar before this very committee about risk waiting and public listing requirements in the bosil 3 endgame proposal astonishingly he claimed that small business would be better off under the proposed scheme than they are now despite the fact that less than one tenth of 1% of businesses are publicly listed and would qualify for the lower risk waiting Mr Diamond could you speak to how the bosel 3 endgame proposal would impact your ability to lend critical funds to small business and what trickle down effects we might expect If This Were to be implemented yeah so thank you for the question senator I mean first off these questions shouldn't wait for the NPR coming out they should have been answered way before because it's very complex the work should have been done the detail should have been shared directly it makes those loans we either have to charge more uh and I have a lot of unintended cons we know you know we open Osman and Billings but we have to charge more locally just to make sure we return get our return on cost of capital secondarily like the operational risk Capital will increase the cost of Simply holding the small business checking account or making loan and so all these things are cumulative effect it'll also affect our ability to finance your local Community Banks which we often do your local affordable housing uh or your the Montana pension plan so all these things will trickle through they all become a little bit more expensive and there'll there'll be some other unintended consequences one things moving out of banking but also how we deal with customers so I think some people repic some people may drop a few customers and also may lead to more concentration in certain ways because you're going to have to get more Revenue from a client to justify the loan Mr Diamond thank you Mr sharff do you have any comments or thoughts on that as well I I agree with what Mr Diamond said thank you um I want to shift into uh the issue of oil and gas investment in this last year and a half since Russian's invasion of Ukraine February 27th I've had the opportunity to travel extensively throughout Europe where I've met with leaders in virtually all the countries that border Ukraine particularly on the um on the West Side um been the baltics also in the Balkans as well as Ukraine border countries one thing I've heard that's nearly Universal is that they've let the whims of the day dictate their energy policy and moved too quickly away from reliable Bas load forms of energy like natural gas coal hydr power and nuclear I was struck when I was in vilnus they took me out to their LG Facility by the way when that regasification they their you know these floating ships which is parked there it's fittingly called the independence as this LNG really has been key that's coming often from the United States to get Europe back on its feet to a certain extent here's way State energy but I asked these folks who were running the LG plant what did you do before you were making LNG and I had a background in chemical engineering I was kind of curious about process and who these people are they said well we used to run the nuclear plant in uh in Lithuania so what do you mean you used to run it is we used to supply 70% of lithuania's electricity through a nuclear plant but in 2009 it was shut down so why was it shut down it says as a condition of joining the EU they made him shut it down and litha weny went from being a net energy exporter to an energy importer and this is just a warning thing for all of us you can't let the whim of the moment some particular segment of a you know a green movement at that time was very anti-nuclear and to their credit it was an old Russian design you know Chernobyl type reactor that needed to be changed over but they were Hitachi was building going to build a new Japanese state-of-the-art reactor shut the whole thing down and they're paying a severe price for it the need for fossil fuels is not going to dissipate in the near term I'm very concerned the Biden Administration has an allout assault on the oil and gas industry in the United States to further their green Phantom FY and hallucination we can do this the safest and the most environmentally sound way to have a balanced energy portfolio that is includes of course Renewables and the exciting future we have in the transition but we better make sure we think about expanding our portfolio when the world's going to need 50% more energy than it does today in the next 25 years Mr Diamond can you discuss import very briefly U 30 seconds if you can Mr D Mr dond here's my question can you discuss the important import of having some common sense as relates to Capital requirements lending so forth in the oil and gas industry we have to finance a transition you need secure safe affordable oil and gas to do that the oil company doing a great job reducing CO2 if you don't have affordable cheaper energy the cost on poor people poor Nations will be dramatic we can get it done right as long as we were very thoughtful about it Senator Smith is recognized from Minnesota thank you Mr chair and good morning to all of you or I guess it's good afternoon now so I'm glad to have you all with us um I'd like to start with uh you Mr sharf um so I want to talk to you about the community reinvestment act um I think that this is a really important tool for making sure that people and businesses in low and moderate income communities have access to Capital and lending and financial services and I for one I'm encouraged by the new CRA uh rul making which I think is an important update and I think it makes some thoughtful changes to realign the CRA with its core purpose and to give Banks and financial institutions um clear Direction on what activities qualify uh for CRA credit so Mr sharf could you tell me how you assess this final rule making for the CRA and do you think that these changes will better enable Banks to meet their CRA obligations Senator i' very much agree with uh your sentiment of both the importance of CRA um and uh the need to make changes in existing CRA legislation to ensure that the ultimate goals are actually achieved through the actual legislation um I think when you look at the changes that have been made there's certainly um you know many items that are taken into account which uh are directionally uh supportive of you know what I just said uh we've given some comments uh to The Regulators about some of the specifics that we would um like them to just reconsider as they uh work towards that goal um but directionally rethinking CRA and doing it in a way that all The Regulators come together um is extremely helpful thank you I agree with that I think having everybody being on the same page was an extremely important um part of this as well another thing that I think is true is that these updates to the crra regs were decades overdue so do you think that it would be helpful for Regulators to update these rules more regularly to kind of have a more rapid cycle not talking about changing rules all the time but I'm saying learning from our experience and your experience to make sure they're working well um I mean Senator yes it absolutely makes sense to Rel look at these things and make sure that they're having the intended consequences and just uh at the same time realize that all of those changes then filter through a lot of work that we have to do and so to strike and that right balance uh is also I think very important great thank you um uh Mr Solomon good afternoon it's good to see you um many of us are giving thought to how um AI artificial um intelligence is being deployed and how we should be setting guard rails for its use and understanding that AI has been in use for many years um I think it's true that generative AI has gotten a lot of attention over this last year and both for its capacity and also for the limitation that um have been on full view earlier this year Mr chair the being AI chatbot urged a New York Times Reporter to leave his wife and just last week it was reported that the Amazon chatbot experienced and I quote severe hallucinations and leaked confidential data so my question for you is the leader of um um Goldman Sachs is how do you see using this I know that you are you probably have been using our um AI tools for quite a long time but could you talk a little bit about how the generative AI projects that you're working on how you see these being deployed internally and how you are thinking about the appropriate guard rails thank you for the question uh Senator obviously it's something we're very focused on and as you highlight there are super offensive productivity things that can be done with the technology as the technology accelerates as you point out we've been using artificial intelligence in our business for for quite some time but these large language models accelerate your ability to use um you know very very highly paid people more effectively with clients by giving them access to information and giving our clients access to information that is sorted and organized more quickly those are the positives on you know the negatives of the defense of the technology can obviously be used to disrupt activities to disrupt markets it falls into our category of thinking about cyber protection and guard rails and so we have an enormous amount of focus in thinking through how these tools can be used to attack our systems our platforms Etc um I think it's the acceleration of this technology is going to continue the pace is quite robust and I think there are opportunities but we also certainly have to be vigilant to recognize that there are things that are going to develop that we can't see and we've got to make sure we have the right Protections in place thank you Miss Fraser I just have a couple seconds left you and I spoke about this a little bit um recently um tell me how you think about this from City's perspective so about four years ago we put some principles in place for how to use AI um and topics such as uh fairness and transparency and how it's used making sure that you can understand and Trace uh the different uh algorithms that are in place elements like that and making sure that there is human human beings governing this um and make sure the protections are there so we get the opportunities realized from it um and also use it to defend against the threats thank you thanks Senator Smith senator fedman from Pennsylvania is recognized thank you Mr chairman thank you uh well so uh all right uh Mr Monahan back in 2008 the Bank of America your bank didn't have enough Capital to cushion the bad Investments decisions that you made and you had to be bailed out and then in 20123 of this year the Silicon Valley Bank didn't have maintaining enough capital and had to cost over 20 billion from the FDIC so let me ask you um should we believe you that you have the Batman we got this kind of an issue or should we able to have to have intervention to adjust this well Senator I think uh since the financial crisis uh this group this body along with Congress and the president passed the dodf Frank act and there have been which changed the capital rules there was an adoption of further bosil standards uh on top of that there's been uh 13 stress tests if I got it right each one of those uh more severe and so even in the last five years we have probably have you 10 15% more Capital required for the under those tests so I I I think there's been a significant amount of regime uh change made the question is for the institutions that failed early this year is that none of them are uh captured with that uh scrutiny and our our view was as a group that had to go in and do two things one try to keep them alive long enough so they could be resolved and secondly this week or some soon we'll cut a check of 2.1 to $2.2 billion to the FDIC to pay for the cost of the cleanup in our company along with all of us you know our view is that that these Capital rules aren't really going to address that and there have been many capital rules applied to these institutions in the 30 stress tag Banks which do apply to that and that's why uh you saw us to be a source of strength earlier this year oh yeah well if you felt that you know we all supported those kind of changes uh after after the crash um and then how come we have a you know uh what happened at the Silicon Valley Bank uh now some years later that and if there wasn't the kind of intervention it would have called another kind of a crash so so have we got it right yet should we have to make any more changes how are you okay with this idea that a relatively small Bank especially compared to the size of all of you in front of us toight could could cause uh a crash systemwide unless that the president had to quickly intervene and make sure that we address this any changes anything else any or that it's okay to worry that a small Bank could actually uh uh imperil our entire Financial system uh I think 4,000 banks have failed over the course of time that's what the FDIC was created to help and they've been resolved as as a but have any of them almost crashed their entire economy or the the financial system I don't in 0708 the system was outside the system in addition to that so many of the people up here were not Bank holding is at that time and that that's was the invention of the broader purview of the banking uh regulatory net the invention of the fsock we've talked about the invention of stress testing the invention of all these things and and bosel rules to measure to move to a uh Advanced methodology using models and other things to measure risk as opposed to standardized methodologies which is what we're going back to now all that was made to change the system Silicon Valley didn't threaten the US economy it would could have been resolved and it was resolved why did the why did why did the president you know act so swiftly if if there wasn't such a concern you know that's amazing that you can get you know on the phone and act so quickly for that kind of money like you know if if there really wasn't such a significant risk I mean I wasn't read about the other 4,000 banks that crashed that that you know required the president to to react in such a Swift uh manner you'd have to ask the people we we didn't think that that all that could have been resolved differently many of us that got involved in with the First Republic transaction uh the deposits we put in but you're going to have to ask the other people why they did what they did like it's not us okay so but but again so no changes are are necessary despite now that we seem to have this this en enduring kind of a risk that bad behavior or bad Investments could actually crash you know our whole financial systems there were specific things that happened in Silicon value bank that should be addressed by regulations and the most important one is excessive interest rate risk that's got nothing to do with bosel 3 the issue here I and I think the American public should know that Banks pay for the FDIC that's not government money that is a mutual company and I would love to take it over and take it off your hands and manage it ourselves with all with all due respect Mr Daman I don't really and I really think it really matters you know who's paying for it but the fact that anyone has to pay because of these choices are necessary now my chairman could I have and actually Mr Diamond was next in my question uh quickly outstanding all right so Mr Diamond you claim that the capital requirement and the uh that will increase costs and reduce lending Chase done 5.7 billion in share BuyBacks and 9 billion in dividends so far this year so wouldn't it be easier just to kind of uh hold on to a lot of that money and lend it out or why would you want to give it away to the shareholders and other things like that or buying back your own stock it is the shareholders money uh and we do all the proper lending we can and should do uh it will reduce the profitability to a bank of doing the business and I don't think you should be asking people to do stuff that's impr that's unprofitable for their shareholders that's that's more like a charity there's tons of that happy to talk about that in more detail uh thank you Senator fedman the committee will take under advisement Mr Diamond's proposal to take over the FDIC yeah I I would love I would love to have I there was more time because I wanted to I would love to explain you have you explain why we should support uh Democrat should have support Nikki Haley for president but don't have time thank you Mr fedman and well I like your ideas on SSI Mr Diamond I need to think more about FDC uh senator warno from George is recognized thank you so very much Mr chair um before I get to the question that I uh set out that uh ask um I I have to respond uh to the senator from Ohio not the chair uh who apparently takes great umage uh to the words or the letters sent uh by the leaders of these institutions uh responding to the uh voter suppression bill that was passed in Georgia um I know a little something about uh voters suppression in Georgia uh today is in fact the one-year anniversary of my election in Georgia but my election should not give people the false impression that there's no voter suppression in Georgia it should not give us any misunderstanding about how bad a law sp22 actually is in fact I had to sue the state of Georgia uh because at the beginning of my runoff a year ago they decided that folks wouldn't be able to vote the first Saturday of the runoff uh claiming that uh this was the clear letter of the law you couldn't vote a couple of days after holiday that holiday being Thanksgiving and a day that used to honor the anniversary of Confederate general Robert elely and so I had to sue them and then appeal again and again just so Georgia voters could vote so I think that uh people in your position do have a corporate responsibility and uh I hope you will certainly feel the freedom to lean in uh in the places and the spaces where it's necessary and in that vein I want to ask you about the safer Banking Act uh legislation recently cons considered uh by this committee on uh cannabis banking many of your banks have lobbied for this bill and the American Bankers Association of which you all are members supports the bill as well I'm going to ask you to raise your hand if you support if you support the safer Banking Act none of you support the safer Banking Act if if I'm going to ask you a question raise your hand if you support the safer Banking Act Senator we all support the intent of it the problem is it doesn't fix the problem and that's it it so don't take our non-essential ask my next question P keep your raise your hand if you believe passing the safer Banking Act will reduce will reduce the racial wealth Gap so this this is interesting and so we we should have some conversation about this the American Bankers Association of which all of you are a part writes that this legislation will provide quote legal and Regulatory Clarity for banks and it would help facilitate access to financial services my question is legal and Regulatory Clarity for whom and who are we making safer since the War on Drugs began over 50 years ago communities Across America have been decimated they've been hollowed out uh communities all across our country in the wake of the explosion of mass incarceration making us the mass incarceration capital of the world missing bodies and abandoned buildings the War on Drugs has been a war on communities of color I want to be clear that I I am open to safer Banking and more regulatory Clarity around cannabis but my fear is that if we pass this bill right now then your Banks and other powerful voices will be missing in action when it comes time to address the broader harms of the war on drugs and so I support safer banking you all seem reluctant uh to say whether you support it or not I'm I'm concerned about equity and whether we will get that in the process so so let me ask you this will each of you commit to ensuring your banks will uphold the standards that would uh standards in the community reinvestment act that is uh which will soon have another opportunity uh to address uh will you support standards to increase Equity as we move forward perhaps on safer banking Mr sharf yes Senator Mr Maham yes sir Mr Diamond we support the intent but I would have to see the actual words and the actual law would you support efforts to uh be intentional about supporting equity and addressing the uh awful impact of 40 Years of of the War on Drugs which in many ways has been a war on black and brown Community yes but I would before I agree to something I like to see the actual detail down to the last word okay Mr Frasier Miss Frasier I'm sorry yeah um I theator Mr Diamond absolutely support the intent um The Details Matter we'd look at it and work with your office if we had concerns Mr Ohan we support the intent Mr Vince uh similar to my colleagues we would want to see the detail uh Mr Solomon I would want to understand the detail more we will continue to do things to support investment in underserved communities exactly same same thank you so very much I I think this is critical uh there's nothing in history that suggests to me that if We Leave Behind These communities uh that are marginalized uh as we make make banking safer uh for powerful Banks and people in in positions who sit here and who sit there there's nothing in history to suggest to me that we're going to go back and get those folks and so I hope that I can continue to engage you and that as good corporate responsible citizens uh you will take an active interest in this recognizing that it's not only the right thing to do uh for the future of our economy it's the smart thing to do thank you so much thank you sen warock and thank you for setting the record straight on the Georgia election law thank you Senator lemus thank you Mr chairman uh welcome there's been a lot of talk today about basil 3 um I we've we know what it means for your Banks um I'd like to explore for a little bit what it means for small Community Banks uh Wyoming and other rural States rely on small Community Banks and while the capital requirements uh apply to uh the systemically important Banks um I would like to know if there are additional impacts on smaller Community Banks uh and their customers um so I'll I'll address the question to Mr Diamond and then ask anybody else who wants to take a swing at this to weigh in as well so thank you Senator I think the smaller Community Banks would say they're not directly affected by this but since a lot of us up here Bank those Banks we Bank their retirement funds we Bank their cities we Bank other small businesses we Bank Local Schools cities states hospitals uh it will trickle down to higher cost to them in one way or the other it also changes the competitive landscape it may in some ways make it harder for them to compete with us as opposed to less hard would anyone else like to take a swing at that one thank you um Americans in Iraq with a financial institution through um their Banks and they save like for kids college education with mutual funds and protect their families with insurance can you explain why ultimately these changes will impact families planning for the future so my question is what are the impacts of bosel 3 on pensions mutual funds insurance companies and other users of derivatives who Hedge now hedging in my industry agriculture is very important uh so I'm interested in the implications for hedging and and the other entities I mentioned perhaps uh Miss Frasier are would you address this yes uh hedging plays a very important role for um protecting against risk and helping mitigate risk um particularly when we're in very volatile times at the moment um it's important for providing stability and income flows um in commodity hedging is a critical piece for any farmer uh in America um so the increasing Capital associated with the Basel 3 rule will have an impact on the cost of that hedging and potentially even the provision of that hedging and as you say it permeates many different uh many different parts of our economy and Society it's not just for the most sophisticated players I I I want anyone who's interested in responding to this question to take it uh one of the things that my staff observed is that one of the most poorly thought out parts of bosel 3 is how public listings are used as a proxy for counterparty risk in derivatives counterparty credit risk in derivatives so it looks like this will harm at a minimum nearly 70 million households who invest in mutual funds i' I'd like to know if you agree with my staff's concern uh and uh how we might address that this is for anyone who wishes to take it yes sir it it's a very crude measure of risk and doesn't reflect the fact that some of the largest and most sophisticated companies in America are public so um it it's just putting in one basket uh saying that by definition if you're not public and if you look at the trends in fact fewer and fewer companies are public these days um that's a whole different kind of debate that we can get into some other time but it's it's a terribly crude measure do you know why they chose to make public versus private companies different and treat them different in terms of uh using them as a proxy for counterparty credit risk and derivatives anyone well we don't know either so we're all in the dark okay question um why is it and this again is for anyone who wishes to weigh in why is it so important that the United States have a regulatory framework that allows our financial institutions to compete on the global stage as we see the rise of China asserting the influence of the Yuan all over the world um help me understand why we have to stay competitive I speak as a as an immigrant to the states um America plays a critical role around the world in terms of supporting Supply chains terms of the risk management tools it provides the stability it provides to uh populations all over the world the investment flows we account for over 50% of all of the the capital activity and investment activity in the world that is a strategic asset for America it's something we should be incredibly proud of and it's something that we need to defend anyone else okay anybody else want to answer sure I think when you're next to the last people are getting kind of tired so thank you so much you thank you for the patience of all of you Senator Butler the newest member of this committee and sorry you have to sit there number 100 when you were number 100 you stand between the panelist and lunch um so I uh appreciate very much the time that you all put into talking with me knowing that I was going to be the last person to ask you questions but because most of you have a significant footprint in the state of California um I thought it important on behalf of the 40 million California residents uh to sit here uh the entire time and represent uh their interest uh across this industry um I'm glad our ranking member made his way back as as the newest member of the Senate I'm still getting to know my colleagues and I wanted a ranking member to know that I do agree with him on a key point that he made in his opening remarks and that is the majority of the American people who are watching this broadcast particularly who are still watching um are not talking about nor have any interest in basil 3 endgame um they are talking about fairness and fees and affordability um and so that is where I want to land my two questions I want to uh and it's honestly not to to pick on anyone um but really in the in the space and intention of of moving things along um I want to pick up on Senator Smith's Point around algorithms and algorithmic deployment Miss Frasier you and I spoke about this um as it relates to customer account closures um we talked specifically about the November uh 5th New York Times article in which city was specifically mentioned a customer uh of yours um who owned a bar um and who was um making barlik deposits endof day cash deposits um uh in round amounts so that they could actually keep um petty cash on hand to be able to make change at the bar and found themselves the victim of an account closure um due to what the algorithm determined was suspicious activity can you talk more about the um process um that you have deployed across uh City to give customers confidence that um when you are doing your due diligence as a a significant um Global uh investment in institution when you are doing your due diligence to provide an enhanced National Security how do those American people who are still watching who are still listening who will hear this back how do they can how can they have confidence that their credit isn't going to be negatively impacted that you're going to return their whatever remaining balance that they may have on time in a way that they can actually get their bills pay due to no uh wrongdoing of of their own I've Senator thank you very much for the question thank you also for sitting through the entirety of the hearings today um you you rais really important point I think all of us want to protect our customers there's a tremendous amount of fraud there's uh cyber is probably Keeps Us awake at night uh we want to do a good job for our customers we want to look after them and enable them to uh live their lives and their financial lives securely uh we have money laundering requirements that are very significant um in which we're not allowed to go and then tell the customer why it is we've uh we've closed their account and I think all of us appreciate how frustrating that is for our customers but we must follow the law um you and I have also talked about when it's found out that a customer's account is being closed in error or for some other reason or there's been fraud blocks how do we then help them recover their funds quickly and that again I think there is no no Bank CEO on this table that not want to help a customer to do that um and we're very happy to follow up with you on what are different ways that that can be achieved uh thank you thank you and thank you for extending that um opportunity to continue to figure out ways that this body can act to protect not only California customers but but but people who are banking with your institutions around the country my last question Mr Diamond you and I also talked about this as the representative from California it is critical that I represent those voices on affordability and home affordability uh in particular your uh institution has done uh an incredible amount uh on this issue and I want to applaud and um recognize you for that the other um on the other hand the other issue that I raised with you is just a concern um of uh this intersection of both um a declaration and a support for um investing in affordable housing and making mortgages more affordable for low and middle inome families and the practice of financial institutions in um buying real estate development purely for the purposes of putting it up for rent those two things seem to be in in opposite and in contrast uh to me and and there's a report of uh J of JP specifically in California about about this behavior and I'd love to give you the opportunity to talk to Californians about how you are meeting both of those obligations the obligation to uh to provide more affordable housing help to create more access uh to the American dream and at the same time creating more buying more and more single family resident Residential Properties that they are not that they are where they are going to be um only available for renting right oh thank you be brief if you thank you for the question senator love affordable housing do a lot of it as do a lot of the banks up here we can make mortgages at much much lower cost for lower size mortgages I've been dying to work on that for 10 years now I think that you're referring to an instance where we financed a company which is building homes and it's I think 200 homes for rental remember rental is appropriate for some people and so I understand your concern and I'll look into the specific thing but uh but building more homes is good for affordable housing thank you Mr Senator Butler thank you uh thanks to the a of you for joining us today for senators who wish to submit questions for the hearing record those questions are due one week from today Wednesday December 13 to the banks please submit your responses to these questions for the record 45 days no more than 45 days from the day you receive them thank you again the hearing's Jed you have been watching the Senate Banking Committee on Capitol Hill it's been a long one this is Bloom technology I'm Caroline High let's go straight to some of the key takeaways from those very hearings shal bask is been standing by also on Capitol Hill and shanali the takeaways you think in terms of actually approaching Basel 3 and game were to become final listen on one hand the lawmakers some of them have heard their cry they heard the bank CEO's case and they believed it in some cases but you know they would have to go to the Federal Reserve and the FDIC and other regulators and make it sure that those Regulators waited to implement these rules and really push this off now on the other hand one senator I spoke to of particular interest was JD Vance the Ohio Republican who you may remember was a venture capitalist himself I asked him whether the private credit industry the private funds industry would also face their own regulation and he said that is very highly likely he could see things going that way so this push pole between the banking industry and their biggest clients are going to be very highly watched because of course we know that uh of course the meeting is ending right now and you're seeing the banks in just a few minutes here all about to walk behind me as well probably Caroline but you know you do see this push between the biggest banks and their biggest clients at this point in time given the tension behind the capital rules we're a Tex show let's talk about AI the questioning there crypto the questioning there what did you take away from some of the thoughts from Elizabeth Warren Senator Warren in particular listen the feelings that have been left over from the crypto crash and how many millions of Americans have lost money and the binance settlement that we've seen so recently Elizabeth Warren agreeing with big Banks and they're the biggest CEOs never happens this way but yet you have them agreeing that the crypto company should be facing the anti-money laundering rules that these banks have had to face for decades and so that was some place that they faced agreement Elizabeth Warren has turned her attention from the bank CEOs over to the crypto industry that has been made pretty clear today and the rest of the Senators are very very worried not just about crypto but about Ai and whether you are in a an area where you're calling a bank and you don't know whether you're speaking to artificial intelligence or a person with your personal financial information chali we're going to let you start running after some of those Bank CEOs and indeed some of those Senators who've just seen what behind you we thank you so much shali bassak meanwhile let's talk the democratization of Finance retail access to certain Assets in particular now retail investors on publ brokerage will be able to buy slices of corporate bonds just like they do with stocks bringing a wider buyer base to what is of course a multi- trillion dollar fixed income Market joining us now Yanik maling his public co-ceo and co-founder and and ultimately it is a more IL liquid asset class than equities but you're wanting to try and bring some sort of liquidity ability to buy directly on your platform why yeah I mean with this unprecedented um rise with senen in rates uh the retail Community has grown a large appeti for yield and with that they've rediscovered the whole world of bonds we we've seen that firsthand the public back in in March of this year we announced the ability to easily buy six months T bills and it since went went on to become the most bought asset on the platform from year to date now I think when you look at the experience around buying corporate bonds the full Universe of treasuries and municipes it's really still quite Antiquated I would say I mean the last time rates were this high was literally before the iPhone and so the sort of old it's a little clunky they're high minimums they're difficult to use and what we're announcing today is that we're sort of building a modern alternative for fixed income to really bring the experience of finding evaluating and investing bars into the 21st century tell us what technology is necessary to bring it into the 21st century I mean the reason you're able to bring this is because of your own sort of way in which your platform is using Apex for example what are some of the difficulties of providing such optionality to your users it's interesting so back in 2019 we uh I believe were the first to launch fractional stocks like the ability to actually buy slices of shares and it really works in a very similar way here and we also Apex is also partner on the stocks business and so after we saw the huge take up of our of our t- build product you know we reached out to them and and we partnered on building this kind of solution whereas obviously we're the broker dealer there're sort of more infrastructure and pipes and Regulatory reporting and so forth but it really works in a very similar way in that the liquidity around buying even like these fractions if it comes out of inventory is actually much better than if you have to go to the market every time and obviously the bond market is a little bit different than the equities markets in terms of how the liquidity band works and so um one could argue that it's um potentially even more interesting for the bond market than it might be for the equities Market well come back tell us whether or not this outstrips the demand that you've seen for the t- bills thank you very much and for your patience throughout of course of banking hearing that we were sat through Yanik maling there public co-ceo and co-founder on that product launch meanwhile sticking with the theme of maybe more the artificial intelligence questioning that was going on at the banking hearing AI is dominating the Tech news flow today AMD in particular they're holding that advancing AI event today where it will flesh out its strategy for its high power AI accelerator it's the Mi 300X Ed you're standing by on the ground ahead of the event ahead of an interview with Lisa sue the CEO of AMD and well what what's the anticipation what are we really going to be hearing from her about the excitement for the product yeah look it's really about the Battleground for the market for AI accelerators those high power GP used that go into Data Centers and are right now training large language models or Foundation models later when those models are developed powering the inference side of generative AI tools that market has an incumbent Nvidia in the h100 and this is really a side-by-side comparison nvidia's h100 versus the Mi 300X the technological advantage that Mi 300X has is that it has hbm3 the latest generation of high bandwidth memory that is a technology that's not going into Nvidia products until the second quarter when they come to Market with h200 but they still have that market incumbent title there's a lot of optimism and hype around this because it's a big potential addressable Market that analysts think that AMD can take some share in and analysts not prepping themselves for any updates on the financials but certainly about the spec the specifics of this particular product launch we cannot wait Ed for your interview a little bit later make sure you tune in live to Ed sit down with the AMD CEO Lisa Sue thanks Ed sweet you later meanwhile look Apple seeking to reverse a decline in mac and iPad sales preparing several new models and upgrades early next year of course who's behind the scoop Mark Gman joining us now to discuss and bring us the latest what they're planning new iPad Air iPad Pro MacBook Air models as well yeah Caroline thank you so much for having me yes we have a bunch of new iPads and Macs coming out in the coming months these releases are likely to have to happen in the March time frame so in the spring just a few months from now a little early on the Apple typical product calendar so there's a few things happening here on the iPad side there's going to be a new strategy bigger displays at lower prices so there's going to be two new iPad Air models these are going to have the M2 Chip that came to the iPad Pro at the end of last year and you're going to get a 12.9 in screen for the first time on a cheaper iPad so potentially spending maybe 5 to $700 less to get that almost 13-in display a laptop size screen on an iPad and and then at the highend new iPad Pros with OLED screens new designs and new external keyboards that make the iPad Pros function more like laptops and then speaking of laptops new Macbook Air is coming in the spring new 13-in and 15-in models so the MacBook Air updated for the first time on the 13-in size uh after a year and a half the 15-in model being updated about after 9 months and the big change there moving from the M2 Chip to the M3 chip that came to the MacBook Pro and the iMac in October chips the driving force of our conversation so far today Mark I'm interested though regulations going to be front and center for us throughout the show I'm interested as to what's happening over in the EU Apple it seems is managing perhaps to get a carve out for its iMessaging yeah what we reported uh earlier this morning our colleagues in Europe is that there is a carve out in the digital markets act where apple is not going to have to make iMessage interoperable as part of these new regulations this is an overhaul to how iPhones and iPads

Channel: Bloomberg Television

Views: 29,594

Keywords: finance, news, Bloomberg

Id: 6MMe92v5sSA

Length: 148min 45sec (8925 seconds)

Published: Wed Dec 06 2023