Sen. Elizabeth Warren (D-Mass.) sent a letter to Federal Reserve Chairman Jerome Powell on Monday in response to a Wall Street Journal report last month that suggested the Fed governor was advocating cutting proposed increases in capital requirements for large U.S. banks in half.
Warren also said the report suggested that JPMorgan Chase CEO Jamie Dimon and other top bank executives ” [Powell] It’s widespread.”
The Wall Street Journal reported in May that at a meeting in Washington last fall, Dimon “instructed his fellow CEOs to ignore the central bank’s vice chairman for banking supervision, Michael Barr, and instead press other Fed governors, particularly Powell, to revise the proposed capital requirements.”
Citing Powell’s publicly available schedule, The Wall Street Journal reported that CEOs of the nation’s largest banks met with Powell more than 10 times between July 2023, when the capital requirements proposal first emerged, and March 2023. Four of those meetings or conference calls were reportedly with Dimon.
Warren called the report a “deeply disturbing development.”
“Vice Chairman Barr supports the current version of the Basel Rules and your actions to overrule his judgment are contrary to the spirit of the law,” Warren wrote on Monday.
Warren wrote that Congress has explicitly delegated banking oversight to a vice chair of the Federal Reserve who was appointed specifically for that role.
Citing an exchange between herself and Powell in November 2021, Warren said the vice chair for oversight asked Powell how she would respond if he made a proposal with which she disagreed.
“I’m not going to block those proposals from coming to the board because the law says that’s the job of the vice chair for oversight,” Powell said at the time.
Powell testified in March. He expects “far-reaching and significant changes” to the capital requirements proposals. The comments came a day after 29 House Republicans called on the Fed to withdraw the proposal entirely and resubmit it.
But the new proposals would likely be impossible to implement if a Republican takes control of the White House in November’s presidential election.
In his March testimony, Powell noted that the capital requirements proposal had generated a “huge” response.
Warren isn’t the only senator to take a tough stance against regulators this week. Senate Banking Committee Chairman Sherrod Brown, an Ohio Democrat, sent a letter Friday to Acting Comptroller of the Currency Michael Schuh and outgoing Federal Deposit Insurance Corp. Chairman Martin Gruenberg urging them to follow through on measures the agencies have proposed to tighten bank merger guidelines.
But Warren’s tone may be the harshest.
“Your opposition to Basel III rules is nothing new,” Warren wrote, “but you now appear to be at the mercy of the banking industry.”
Warren’s public criticism of Powell is also nothing new: Before his re-nomination as Fed chair in 2021, she called him a “dangerous person.”
But if there’s another financial luminary with whom Warren has long had fundamental differences, it may be Dimon, the other target of the capital requirements compromise.
“Instead of following Dimon’s orders, you should do your job and ensure that the board convenes and votes on a 16 percent recapitalization by June 30th,” Warren told Powell, noting that that date is the one regulators around the world have highlighted as a deadline to prevent a financial crisis.
of But the European Union has opted to postpone until 2026 an upgrade to Basel III, which governs how banks should cover market risks in their trading books..
“This one-year delay will ensure a level playing field globally,” Mairead McGuinness said.“This gives us time to see what other countries are doing,” Ivan Abeci, the EU’s financial services commissioner, said on Tuesday, according to Reuters.
The “other” in this scenario is the US and the uncertainty surrounding proposed capital requirements from the Fed, OCC and FDIC and what those measures would look like if passed.
