    [Senate Hearing 118-496]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 118-496

                     ANNUAL OVERSIGHT OF WALL STREET FIRMS

    =======================================================================

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

    EXAMINING HOW THE FAILURE OF THE LARGEST BANKS IN THE NATION COULD POSE
                 A THREAT TO THE ENTIRE GLOBAL FINANCIAL SYSTEM

                                   __________

                                DECEMBER 6, 2023

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    57-430 PDF                WASHINGTON : 2025

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                           SHERROD BROWN, Ohio, Chair

    JACK REED, Rhode Island              TIM SCOTT, South Carolina
    ROBERT MENENDEZ, New Jersey          MIKE CRAPO, Idaho
    JON TESTER, Montana                  MIKE ROUNDS, South Dakota
    MARK R. WARNER, Virginia             THOM TILLIS, North Carolina
    ELIZABETH WARREN, Massachusetts      JOHN KENNEDY, Louisiana
    CHRIS VAN HOLLEN, Maryland           BILL HAGERTY, Tennessee
    CATHERINE CORTEZ MASTO, Nevada       CYNTHIA M. LUMMIS, Wyoming
    TINA SMITH, Minnesota                J.D. VANCE, Ohio
    RAPHAEL G. WARNOCK, Georgia          KATIE BOYD BRITT, Alabama
    JOHN FETTERMAN, Pennsylvania         KEVIN CRAMER, North Dakota
    LAPHONZA R. BUTLER, California       STEVE DAINES, Montana

                         Laura Swanson, Staff Director

                   Lila Nieves-Lee, Republican Staff Director

                           Elisha Tuku, Chief Counsel

                      Amber Beck, Republican Chief Counsel

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                           Pat Lally, Assistant Clerk

                          Jason T. Parker, GPO Detail

                        Sheryl L. Arrington, GPO Detail

                                      (ii)

                                C O N T E N T S

                                  ----------

                          WEDNESDAY, DECEMBER 6, 2023

                                                                       Page

    Opening statement of Chair Brown.................................     1
            Prepared statement.......................................    60

    Opening statements, comments, or prepared statements of:
        Senator Scott................................................     4
            Prepared statement.......................................    61

                                   WITNESSES

    Charles W. Scharf, CEO and President, Wells Fargo & Company......     7
        Prepared statement...........................................    64
        Responses to written questions of:
            Chair Brown..............................................   166
            Senator Cortez Masto.....................................   174
            Senator Fetterman........................................   180
            Senator Vance............................................   182
            Senator Warnock..........................................   184
            Senator Warren...........................................   188
    Brian Thomas Moynihan, Chairman and CEO, Bank of America.........     9
        Prepared statement...........................................    79
        Responses to written questions of:
            Chair Brown..............................................   207
            Senator Cortez Masto.....................................   214
            Senator Fetterman........................................   217
            Senator Vance............................................   220
            Senator Warnock..........................................   222
            Senator Warren...........................................   227
    Jamie Dimon, Chairman and CEO, JPMorgan Chase & Co...............    10
        Prepared statement...........................................    94
        Responses to written questions of:
            Chair Brown..............................................   241
            Senator Cortez Masto.....................................   248
            Senator Fetterman........................................   251
            Senator Vance............................................   252
            Senator Warnock..........................................   254
            Senator Warren...........................................   260
    Jane Fraser, CEO, Citigroup......................................    13
        Prepared statement...........................................   113
        Responses to written questions of:
            Chair Brown..............................................   271
            Senator Cortez Masto.....................................   278
            Senator Fetterman........................................   280
            Senator Vance............................................   281
            Senator Warnock..........................................   285
            Senator Warren...........................................   288

                                     (iii)

    Ronald O'Hanley, CEO, State Street...............................    14
        Prepared statement...........................................   122
        Responses to written questions of:
            Chair Brown..............................................   298
            Senator Cortez Masto.....................................   299
            Senator Fetterman........................................   300
            Senator Warnock..........................................   300
            Senator Warren...........................................   305
    Robin Vince, CEO, BNY Mellon.....................................    15
        Prepared statement...........................................   129
        Responses to written questions of:
            Chair Brown..............................................   310
            Senator Cortez Masto.....................................   312
            Senator Fetterman........................................   313
            Senator Warnock..........................................   314
            Senator Warren...........................................   318
    David Solomon, CEO, Goldman Sachs................................    17
        Prepared statement...........................................   138
        Responses to written questions of:
            Chair Brown..............................................   321
            Senator Cortez Masto.....................................   323
            Senator Fetterman........................................   324
            Senator Warnock..........................................   325
            Senator Warren...........................................   328
    James P. Gorman, CEO, Morgan Stanley.............................    18
        Prepared statement...........................................   151
        Responses to written questions of:
            Chair Brown..............................................   332
            Senator Cortez Masto.....................................   334
            Senator Fetterman........................................   335
            Senator Warnock..........................................   336
            Senator Warren...........................................   340

                  Additional Material Supplied for the Record

    Chart submitted by Senator Vance.................................   345
    Statement submitted by Better Markets............................   346

                     ANNUAL OVERSIGHT OF WALL STREET FIRMS

                                  ----------

                          WEDNESDAY, DECEMBER 6, 2023

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 9:30 a.m., in room 216, Hart Senate
    Office Building, Hon. Sherrod Brown, Chair of the Committee,
    presiding.

                OPENING STATEMENT OF CHAIR SHERROD BROWN

        Chair Brown. The Committee on Banking, Housing, and Urban
    Affairs will come to order. Thank you to our eight witnesses
    today. Senator Scott, thank you for your work on this.
        The eight bank CEOs appearing before us today lead the
    biggest global, systemically important banks in the United
    States of America. Your banks hold nearly $15 trillion in
    assets, manage trillions of dollars of investments and
    retirement accounts, and fund the biggest companies in the
    country. You hold nearly half of the Nation's deposits and more
    than $80 trillion in client assets. Your banks touch almost
    every aspect of our financial system and working Americans'
    money, even if they are not your customers.
        All of that makes you eight of the most powerful people in
    the country.
        The banks you run are so large, so complex, and so
    interconnected, that their distress or failure could pose a
    threat to the entire global financial system.
        You may be private companies, but the risks you take and
    the mistakes you make do not just affect you. They do not even
    just affect your customers, or not even just your shareholders,
    or not even just your workers. Mistakes you make affect the
    whole economy, and, as we all remember from 2008 and 2009, they
    can certainly affect American taxpayers.
        That amount of enormous power should also come with
    enormous responsibility. A big part of that responsibility is
    to make sure that investors, not taxpayers, are on the hook
    when risks at your bank do not pay off.
        That is why we need strong capital requirements at the
    biggest banks. Because of this Committee, we finally have
    financial watchdogs in place who are now serious about the need
    for these protections, commonsense rules to ensure that banks
    can withstand losses from the riskiest financial shenanigans
    that create no value to the real economy. These rules protect
    against risky trading and derivative activities on Wall Street,
    the same activities that led to the 2008 financial crisis. They
    would close a loophole that allowed banks like SVB to hide
    behind an accounting fiction that lowered capital requirements
    and contributed to its failure.
        And anyone who had any doubt about whether Wall Street
    could be trusted to use its power responsibly need only look at
    the current lobbying fight on this. If you have watched the
    local news in Washington, if you have waited at a bus stop in
    Washington, if you have flown out of Washington National
    Airport, you have probably seen ads urging people to ``Stop
    Basel Endgame.''
        The eight of you surely know your audience.
        And you have not stopped there. You have even gone national
    in that campaign, pouring money into ads for Sunday Night
    Football. It is a campaign waged by your lobbyists to prevent
    financial watchdogs from putting in place these stronger
    capital requirements to protect our banking system and our
    economy.
        Listening to these ads, you hear all kinds of claims about
    how stronger rules will raise the cost of mortgages and stop
    small businesses from making loans. Wall Street banks are
    actually saying that cracking down on them will, quote, ``hurt
    working families.'' Really? You are saying that cracking down
    on Wall Street is going to hurt working families? You are going
    to claim that?
        The economic devastation of 2008 is what hurt working
    families. The uncertainty and turmoil from the failure of
    Silicon Valley Bank hurt working families, when small
    businesses and their employees in Ohio and Utah and Minnesota
    and California and Rhode Island and South Carolina and across
    the country did not know if they could get access to their
    money and make payroll.
        And of course, the claims in this ad campaign simply are
    not true. Your game, too often, is to try to confuse people.
    Most Americans think of a bank's capital--if you force people
    to think about it at all--most Americans think of a bank's
    capital as money stashed away in a vault somewhere.
        But that is not what it means. You all know that. Capital
    is just a way to fund loans and investments and risky
    activities in a way that can absorb losses if things go south.
    It means shareholders and investors are on the hook, not
    taxpayers. And what those glossy ads do not tell you is that
    your banks have been reducing your lending to small businesses
    and veterans and homebuyers for years now, long before the new
    capital requirement were proposed.
        Remember that. These are just proposals at this point. They
    have not even been implemented.
        Let us be clear. Absolutely nothing in these rules would
    stop your banks from making loans to working families, to
    veterans, to homeowners, and small businesses. Absolutely
    nothing.
        The reason banks might make fewer of these good loans in
    the future is the same reason we have been seeing less and less
    productive banking activity for years: it does not make your
    banks as much money as the risky stuff. You know that. We all
    know that. You would rather fund risky trading and derivatives
    bets than boring, bread-and-butter small business lending.
        So even with this rule, you can still lend to small
    businesses and homeowners. You just might not increase your
    profits quarter-over-quarter by quite as much as you increased
    them last year.
        But I think most Americans would agree that is a fair
    tradeoff for society: More small business lending. More first-
    time homebuyers. Less chance of taxpayer bank bailouts. And, in
    exchange, maybe, smaller executive bonuses and a teeny tiny bit
    less profits for multitrillion-dollar Wall Street banks.
        We know the banking industry does not give up without a
    well-funded fight. Wall Street pours money into high-priced
    lobbyists to fight any effort to put the most basic guardrails
    on your ability to do whatever you want. And what your banks
    want is to maximize quarterly profits, we understand that--the
    cost to everything and everyone else be damned.
        We have seen over and over what a problem that is, and the
    harm that the current system does in places like Ohio. Earlier
    this year, when I first heard about SVB's collapse, my mind
    immediately went to another crisis in my State, in East
    Palestine, Ohio, the place where the train derailment happened
    and affected, dramatically, a community in my State. They have
    one thing in common: corporate lobbyists for years pushed for
    weaker rules, less oversight. Companies cut costs, did not care
    about safety if it got in the way of increasing profits. And
    working people--always, always, always working people--pay the
    price.
        This is why people hate Wall Street. And that is why people
    hate Washington, because these lobbying campaigns, that you
    have engaged in, usually work. We see it over and over. We saw
    it during the fight to pass Dodd-Frank, after the financial
    crisis. Many of us remember the quote from an industry lobbyist
    after the President signed Dodd-Frank--``Now it is halftime.''
        This time, Wall Street was true to its word.
        The executives whose banks failed this spring had lobbied
    for watered-down rules to make it easier to chase profits at
    all costs. They knew risks were building at their banks, but
    they chose to ignore those risks because it meant a bigger
    payout for executives at the top. So we should be concerned
    when the executives of even bigger banks are doing the same
    thing against capital requirements.
        Working Americans are tired of arrogant executives gambling
    with other people's money, then riding off into the sunset
    without any consequences. That is why we need to pass the
    bipartisan RECOUP Act--thank you, Senator Scott, for your work
    on that--to hold failed bank executives accountable for driving
    their banks into the ground. And it is why we need strong
    capital rules.
        Before you protest, I know, of course, that it was not your
    banks, the eight of you, that failed. But after those failures
    earlier this year, we were reminded about how fragile our
    banking system could be, and as a result, your banks only got
    even more powerful. So it is fair to take stock of how you are
    using that power.
        I appreciate the long overdue increases in wages and
    benefits for many of your frontline employees. Thank you for
    that. At least one of your banks has made real efforts to get
    rid of overdraft fees. Thank you for that.
        But your banks need to do far better when it comes to
    meeting your customers where they are and recognizing their
    dignity of work, your employees and your customers. You should
    be cutting prices for consumers, increasing opportunity for
    your employees, increasing diversity within your executive
    ranks, and supporting your workers' efforts, if they so choose,
    to unionize. And you should stop pouring money into lobbying
    against efforts to protect the taxpayers who, in the end,
    subsidize your entire industry.
        The reason for this hearing every year is to hold the
    biggest banks accountable to the American public. I thanked
    each of you for being here, a moment ago, personally. I
    appreciate you all coming together for this hearing. We want to
    hear from you--what will you do to support workers, to invest
    in the real economy, and to finally put Wall Street to work for
    Main Street?
        Senator Scott.

                 OPENING STATEMENT OF SENATOR TIM SCOTT

        Senator Scott. Thank you, Chairman, and thank you to a very
    long list of CEOs who have come to talk with us about how the
    impacts of our regulatory environment will impact everyday
    consumers.
        And I hope that you all, some of the things I will say will
    be redundant because some of it is unprepared based on what the
    Chairman just said, but I hope you all will really answer the
    question of whether nothing in these proposals will stop your
    banks from lending to small businesses or first-time
    homebuyers. Because if the proposals, Basel III Endgame--who in
    America knows of Basel III Endgame really is?--let's translate
    that for the average American sitting at home watching this
    because they have nothing else on TV to watch.
        It is simply requiring more capital on the sidelines, which
    then means fewer dollars to lend to small businesses, first-
    time homebuyers, car loans. So the actual impact of a higher
    regulatory standard is fewer dollars to lend to Americans who
    need desperately to be engaged in the process of achieving the
    American Dream that is typically defined by having access to
    capital.
        If you work really hard and keep your life in order, you
    can have a good quality middle-class life. But if you want to
    actually experience wealth in America, you have to experience
    the benefits of profit or equity. Equity comes from having
    capital. Having capital typically means you either have it
    because you are born with it or you have access to it because
    you have an idea or a vision that will make your community or
    this Nation better.
        When that happens, you go to a lending facility called a
    bank or outside of the market and you find that capital that
    allows you to start your business. And as you start your
    business and it appreciates, it creates a profit, and that
    profit allows you to experience the upper echelon of the
    American Dream. If you have a home, look at the differences
    between African Americans and majority population and net
    worth--tenfold difference. Much of that difference is found in
    the profit or the equity in a home.
        So, when we think about the proposals, not of good
    regulation, but of a nightmare proposal called Basel III
    Endgame that will put so much more capital on the sidelines, we
    should ask ourselves, how does that translate for the average
    American living and working paycheck to paycheck? My thought is
    that it has a devastating impact on access to capital that
    makes the American Dream harder to achieve and access to
    capital, for some folks who started where I started, virtually
    impossible.
        I think if you if you think about today's hearing from my
    perspective, I want to talk about three things. Number one is
    certainly Basel III Endgame, number two is the burdensome
    regulations and guidance that will ultimately hamper consumer
    choice, and number three, the job our regulators are doing, or
    frankly should be doing, and the work and the workplaces our
    regulators cultivate.
        I will start as I just did with Basel III Endgame. The fact
    of the matter is that this one proposal could have a
    devastating impact on small businesses, and I would like for
    you all to address that either now or during the questions.
        Last month, I led a letter to the FDIC, Fed, and OCC
    calling on them to withdraw this misguided proposal because
    American families, the folks who will bear the burden of these
    burdensome regulations, simply cannot afford it. The letter was
    signed by nearly 80 percent of my Republican colleagues that
    really span the entire ideological spectrum and the country.
    Nearly every single person who has signed the letter did so
    because they all agreed that costly, harmful impacts on our
    constituents, our businesses, and their families is something
    that could be avoided if, simply, the banking regulators would
    listen to common sense and withdraw the proposal.
        And frankly, last month when the regulators spoke, even
    some of my Democrat colleagues agreed with our concerns on the
    negative impacts brought to us by a burdensome regulatory
    environment.
        Let me be clear. This proposal could limit, and frankly I
    think will limit, the following: availability of credit for
    housing for those who need it most, severely restrict lending
    for small businesses that are still rebounding from the
    pandemic, and cut into the retirement savings for hardworking
    Americans, like teachers, police officers, firefighters, when
    they are dealing with higher prices and runaway inflation and
    brought by the radical left. These are very, very serious and
    real concerns.
        But Americans should not just hear about the concerns from
    those of us who are Senators. We should hear from those who
    actually run the institutions that they have and trust in and
    have confidence in. As a former business owner myself, I
    believe that you all, as the day-to-day operators of these
    businesses, not elected officials, have a better sense of what
    the communities are facing, the challenges brought upon the
    communities by these higher standards.
        Vice Chair Barr last month said that the new Basel Endgame
    will only impact about 40 of the banks in our country. Said
    differently, two-thirds of all the loans processed will be
    negatively impacted by the Endgame proposal. That is $60
    billion in small business loans in 2021, $250 billion
    negatively impacted, and the definition of ``negative,'' higher
    interest rates or fewer loans in 2022. In my home State of
    South Carolina, that translates into $550 million of small
    businesses having higher interest rates or fewer loans, and $3
    billion in 2022 in home mortgage originations.
        If regulations continue to increase the costs of providing
    a loan, I fear that banks will decrease lending, not only in my
    home State, but across the country. The increased lending means
    increased financial hardship, and increased financial hardship
    means a reduction in opportunity.
        That is my ultimate concern, reducing opportunity for
    everyday Americans. At the end of the day, these consequences
    will create a ceiling for low-income Americans, and it will not
    be a ceiling made of glass. Instead it will be made of
    concrete. We simply cannot let that happen.
        The second item I want to discuss with you all today
    concerns the onslaught of rules and proposals targeting your
    institutions and the banking system writ large. For instance,
    in recent months, we have seen proposals or final rules all the
    way from climate risk management to the Community Reinvestment
    Act.
        None of these proposals exist in a vacuum, and it is vital
    that this Committee hear from each of you about the overall
    impact on the health of our economy. In particular, I am deeply
    concerned by the continued partisan attempts of this
    Administration to advance their climate goals by any means
    possible, including through our banking system, with the recent
    climate risk management guidance.
        Banks have been considering weather risks for decades--and
    you should--it is called common sense. And it remains incumbent
    upon each of you to base your lending decisions on risks you
    can reasonably assess, like weather or credit risk, not,
    however, perceived political, rhetorical, or reputational risk.
        Beyond the explicit cost of these proposals, which
    ultimately are passed on to consumers, I fear that the only
    real accomplishments of the regulators will be to push more
    activity outside of the regulated financial system where we
    have less insight into the impacts on consumers.
        And finally, number three, we must emphasize and turn our
    attention to the performance of our regulators and their core
    mission--the supervision of your banks and the stability of our
    financial economy.
        This past spring, we saw the failures of several banks,
    which shook consumer confidence. Since then, there has been
    nonstop finger-pointing by our regulators. In the aftermath of
    the failures, I was critical of the failed bank executives
    because that is where the dollar should stop. The buck stops
    with the executives.
        But you cannot see that in a vacuum. You have to ask
    yourself the question, what was the role of the regulators?
    What did they do? What did they see? How do they respond to
    that?
        Your institutions have teams of examiners from the
    regulatory agencies in your offices every day, and I can tell
    by your faces you are really excited to see them when they show
    up.
        But the truth is that we, the American people, deserve to
    understand the complexity of the web that exists that makes the
    headwinds real for lending money to would-be entrepreneurs or
    first-time homebuyers.
        Let me close with this. We are not on the same page on a
    lot of issues. I think there are times when banks go too far in
    getting involved in politics. But when it comes to your
    objective of creating access to credit, to resources, for the
    American people and the American Dream, that is where I hope we
    find our attention today, focused on an environment that is
    easier for the average American to experience the American
    Dream or it is made harder because of the challenges brought to
    them by this Government.
        Chair Brown. Thank you, Senator Scott.
        I would like to introduce our eight witnesses, and then I
    am going to ask you each to stand and raise your right hand to
    swear you in.
        Charles Scharf, CEO and President of Wells Fargo, welcome.
    Brian Moynihan, Chair and CEO of Bank of America, welcome.
    Jamie Dimon, Chair and CEO of JPMorgan Chase, welcome. Jane
    Fraser, CEO of Citigroup, welcome. Ron O'Hanley, CEO of State
    Street, welcome to you. Robin Vince, CEO of BNY Mellon, thank
    you for joining us. David Solomon of Goldman Sachs, CEO. James
    Gorman, CEO of Morgan Stanley.
        Please stand for a moment and raise your right hand.
        Do you swear or affirm that the testimony you are about to
    give is the truth, the whole truth, and nothing but the truth,
    so help you God?
        Mr. Scharf. I do.
        Mr. Moynihan. I do.
        Mr. Dimon. I do.
        Ms. Fraser. I do.
        Mr. O'Hanley. I do.
        Mr. Vince. I do.
        Mr. Solomon. I do.
        Mr. Gorman. I do.
        Chair Brown. Thank you. You may take your seat.
        Mr. Scharf, please begin.

    STATEMENT OF CHARLES W. SCHARF, CEO AND PRESIDENT, WELLS FARGO
                               & COMPANY

        Mr. Scharf. Chairman Brown, Ranking Member Scott, Members
    of the Committee, thank you for the opportunity to be here
    today. I look forward to talking with you about the
    contributions Wells Fargo is making to support our customers,
    communities, employees, and to ensure the banking system is
    strong and resilient.
        In March of this year, we all saw the failure of several
    banks rapidly create instability in certain parts of the
    banking sector. Though the causes were specific to the
    institutions that failed, markets became concerned that the
    issues were broader. In response, Wells Fargo, along with other
    banks here today, stood as a source of strength and stability.
    The strength of our institution allowed us to lend support to a
    smaller bank in a time of need. These actions helped stabilize
    the banking system, ease consumer concerns, and keep a
    challenge from becoming a much broader crisis. I am proud of
    the role we were able to play.
        Wells Fargo's strength comes from a strong financial
    profile, disciplined financial risk management, and a
    commitment to run our business with high standards. Our top
    priority continues to be building and running a well-controlled
    company.
        Over the past 4 years we have simplified our business model
    and have exited or downsized several businesses. We are
    primarily a U.S. domestic bank, and we do not have many
    complexities that running large-scale international businesses
    brings. Our legal entity structure and physical footprint are
    far simpler than many of our competitors. Approximately 90
    percent of our revenues come from the United States.
        We proudly serve one in three U.S. households and more than
    10 percent of small businesses in the U.S. We are a leading
    middle-market banking provider here. We maintain one of the
    largest branch networks in the Nation, and we have more rural
    branches than any other large bank. Nearly 30 percent of our
    branches are in low- or moderate-income census tracts.
        We are constantly improving how we serve our customers and
    our communities. We are investing in our branches, we are
    building digital capabilities to complement our physical
    presence, and we are investing in the products we offer to our
    customers.
        Since 2019, we have taken numerous steps to reduce and
    simplify fees, which as of yearend 2022, have resulted in
    average consumer deposit accounts paying approximately 25
    percent less in fees per year. We give customers the choice of
    an account that offers overdraft protection or one that is not
    subject to overdraft fees. We eliminated nonsufficient fund
    fees and transfer fees for customers enrolled in overdraft
    protection. We introduced Early Pay Day, which makes eligible
    direct deposits available up to 2 days early; Extra Day Grace,
    which gives eligible customers an additional business day to
    make deposits to avoid overdraft fees; and Flex loan, a new
    digital-only small-dollar loan.
        I am also proud of the role we play in our communities,
    where we seek to have broad impact. Last year, people who work
    at Wells Fargo contributed over 700,000 hours of volunteer
    service. I have spoken in the past of our decision to take the
    $420 million in fees we received from administering the PPP
    program and donating them, through local partners, to small
    businesses in need. Through the first half of 2023, these funds
    have helped support more than 203,000 small businesses, the
    majority of them diverse owned, and helped preserve or create
    nearly 254,000 jobs.
        Finally, we believe our employees are our greatest asset.
    We invest in them, and we listen to them. Since 2019, we have
    increased wages for U.S. hourly employees by nearly 20 percent,
    and increased the average pay rate for tellers by 34 percent.
    In 2022, we increased the minimum base pay for more than 40,000
    employees, and we invested an additional $200 million in
    employee development.
        We have several ways for employees to share ideas or voice
    concerns. Their voice matters. We take their feedback
    seriously, and we act on their comments. For example, in our
    consumer bank, approximately 4,000 improvement ideas that our
    employees have submitted this year have been implemented or are
    in the process for future implementation. Engaging directly
    with our employees in this way is critical to improving the
    work experience at Wells Fargo.
        I want to close by thanking our employees. Their dedication
    is unmatched. I am thankful for all that they do, and I remain
    committed to leading Wells Fargo to being one of the most
    respected financial institutions in the country.
        Thank you, and I welcome your questions.
        Chair Brown. Thank you. Mr. Moynihan, welcome.

     STATEMENT OF BRIAN THOMAS MOYNIHAN, CHAIRMAN AND CEO, BANK OF
                                AMERICA

        Mr. Moynihan. Chairman Brown, Ranking Member Scott, and
    distinguished Members of the Committee, good morning. I am here
    once again to proudly represent my 212,000-plus Bank of America
    teammates. Today I will provide an update from last year on how
    we deliver responsive growth for our clients, our teammates,
    our communities, and shareholders every day.
        Responsible growth continues to deliver strong results
    during times of relative calm as well as during challenging
    environments like we experienced earlier this year. We saw
    market turbulence as a limited number of financial institutions
    faced challenges due to their unique business models. Bank of
    America, as we did during the pandemic, along with my colleague
    companies, served as a source of strength and stability for our
    industry and for our customers during this time. And we did
    this all while continuing to strengthen our balance sheet. As a
    GSIB, we are subject to the highest capital and liquidity
    requirements, and all of our metrics exceed those requirements.
        And while we have declared that we have the capital today
    meet the proposed new capital rules, we remind that recent
    years, including this one, have shown just how important it is
    to have these institutions be able to position our balance
    sheets to help customers and clients in times of stress. That
    is why we continue to play an active role to help inform the
    future of this industry, including comments on proposed Basel
    III capital rule. We believe that capital accumulated by the
    industry should continue to serve the customers in America's
    economy, not be subject to regulatory capture by a theoretical
    model. The $30 billion in excess today at Bank of America
    should be used to grow the U.S. economy, to support the
    business plan of small businesses and medium-sized businesses,
    to help consumers buy a home and recognize the American Dream.
        And now for a few specific examples of progress on
    responsible growth. At Bank of America we serve 60 million
    American consumers, 11 million small business clients, and tens
    of thousands of commercial clients. We continue to focus on
    delivering expert networking guides across our high-touch
    physical network. We ended the year with 3,900 financial
    centers and 15,500 ATMs. We opened 58 new financial centers
    last year and renovated 784 more of them. In addition to these
    branches we have tens of thousands of teammates serving in over
    100 local markets around the country. Over the next 4 years we
    are expanding to Omaha, Louisville, Boise, Birmingham, Madison,
    New Orleans, Milwaukee, Dayton, and Huntsville. This will
    enable us to bring our full range of services and solutions to
    better serve clients and help drive local community growth and
    development.
        We also developed and deployed our strength to low- and
    moderate-income customers, including approximately $9 billion
    in LMI loans to small businesses in 2022. In addition, we
    provided nearly $8 billion in debt and equity financing,
    creating more than 10,000 units of affordable housing. And we
    have committed $15 billion to our Affordable Home Ownership
    program. That will help 60,000 American families purchase a
    home to ensure the American Dream.
        Over the last few years we have also invested in 24
    minority deposit institutions. We have $2 billion outstanding
    at the CDFIs. We have helped seed more than 150 private equity
    funds run by women and diverse private equity entrepreneurs.
        Our clients also continue to look to us to help them
    achieve a transition to secure a low-carbon economy. With tens
    of trillions of dollars of investment needed over the next 30
    years, this transition creates significant opportunities for
    our clients and for our company. This transition has to be led
    by the private sector or it is simply not going to happen.
        Within our company we continue to invest in our teammates'
    physical, emotional, and financial health. This includes taking
    steps to continue to move to our $25 U.S. minimum hourly wage
    pledge, which we increased to $23 in October. And for the 12th
    year in a row, U.S. teammates earning less than $50,000
    annually will not see any increase in medical premiums. For the
    sixth year in a row, our teammates received special sharing
    success bonus, generating equity ownership to over 200,000
    teammates.
        We are a great place to work, as recognized by external
    parties and by our teammates. Our employee satisfaction scores
    remain at all-time highs, and our turnover rate is approaching
    an all-time low.
        Responsible growth also means supporting the communities
    where we live and work. In 2022, we made $360 million in
    philanthropic investments. Our teammates reported nearly 2
    million volunteer hours for the year. We also created
    opportunity in our communities for employment. We are in the
    second leg of a 10,000 teammate hiring. That is 20,000 total,
    from low- and moderate-income communities to work in our
    company. Similarly, we have hired over 15,000 veterans in the
    last 8 years.
        And importantly, responsible growth delivers for our
    shareholders. We have delivered stronger and stronger returns.
    We continue to increase our common dividend, and we continue to
    return capital to shareholders.
        This is driving responsible growth. This is American
    capitalism at work. Thank you.
        Chair Brown. Thank you, Mr. Moynihan. Mr. Dimon, welcome.

     STATEMENT OF JAMIE DIMON, CHAIRMAN AND CEO, JPMORGAN CHASE &
                                  CO.

        Mr. Dimon. Thank you Chairman Brown, Ranking Member Scott,
    and Members of the Committee. I appreciate the opportunity to
    talk about JPMorgan Chase and the role of America's largest
    banks in supporting our economy.
        The United States has the best financial system in the
    world, where retail banks, investment banks, asset managers,
    investors, hedge funds, and nonbanks serve the American
    economy. The country benefits from thousands of banks and
    credit unions of all sizes, covering all corners of our
    country.
        I am very proud of this company and of the more than
    300,000 employees worldwide. In the U.S. we serve more than 80
    million customers, 6 million small businesses, we have more
    than 4,800 branches now in 48 States, almost all of your States
    here, and Washington, DC, which puts a Chase branch within a
    10-minute drive for 60 percent of the population.
        We are a top lender in every rural State, serving medium
    and large companies, local governments, hospital, universities,
    farms, and manufacturers, providing almost $100 billion of
    credit and capital to clients in rural and small towns.
    JPMorgan Chase extended a total of $1.7 trillion in credit to
    consumers and corporation in 2023. We moved $10 trillion around
    the world every day in 120 currencies in 160 countries daily,
    and we safeguard more than $29 trillion in assets.
        The country benefits from thousands of banks and credit
    unions of all sizes, serving all corners, and we must
    acknowledge that there are some things that can only be done by
    large and complex banks, things that are essential to a
    thriving U.S. economy and American competitiveness.
        While we are a large Main Street bank, large banks on this
    panel serve America's interests overseas. We bank America's
    largest multinational corporations around the world. We bank
    other banks and financial institutions such as mortgage finance
    companies, insurance companies, the World Bank, IMF, community
    banks, MDIs, CDFIs. Large American banks support the deepest
    transparent and most liquid capital markets in the world. We
    underwrite large and complex municipal bonds which provide
    Governments' financing for roads, bridges, schools, hospitals,
    and airports, and we help American small businesses manage
    their money and finance their dreams.
        Our collective work is important in good times but
    essential in troubled times.
        In good times, large banks help Americans save, invest, and
    grow. We underwrites stocks and bonds to create investments for
    retirees and other savers, and raise money for companies,
    fueling jobs creation and new business development. As
    guardians of the financial system we support our Government and
    national security to combat financial crimes and to carry out
    complex sanctions. We are a force for good for the country, its
    citizens, and the global economy.
        In troubled times, large banks provide market stability to
    protect customers and employers alike. As demonstrated recently
    during the spring 2023 regional bank turmoil, large banks
    stepped in to provide market liquidity, which protected
    consumers, retirement savers, and employers.
        During COVID we also saw America's large banks provide
    significant support, extending tens of billions of dollars of
    credit and capital to struggling large and small businesses,
    local governments, universities, and hospitals, at a time when
    they needed it the most. Banks waived hundreds of millions of
    dollars in fees and postponed loan payments for customers
    struggling to make ends meet.
        Despite zero evidence that the U.S. banks are
    undercapitalized today, the proposed Basel III Endgame rule, 10
    years in the making--shockingly--if enacted, would increase
    capital requirements by about 25 percent for the largest banks.
    None of these proposed changes, by the way, would have
    effectively prevented the Silicon Valley Bank failure.
        The rule would have predictable and harmful outcomes to the
    economy, markets, businesses of all sizes, and American
    households, in ways the Federal Reserve has not studied,
    contemplated, or shared.
        Mortgages and small business loans would be more expensive
    and harder to access, particularly for low- to moderate-income
    borrowers, as costs for originating and securitizing loans
    rise.
        Savings for retirement or college will yield lower returns
    as costs rise for asset management, money market funds, and
    pension funds.
        Government infrastructure projects will become more
    expensive as capital requirements for market activities more
    than double, translating to higher costs to build hospitals,
    bridges, and roads.
        From beverage companies that need to manage aluminum costs
    to farms that need to protect against environmental risks, if
    the cost of hedging these risks increases, everything from a
    can of soda to meat products will be impacted.
        Ironically, a proposal meant to mitigate risk will actually
    increase risk. This rule will result in an increased shift away
    from regulated markets to less regulated markets--which was not
    also studied, by the way--and this activity will be out of the
    sight of regulators, unable to see the next crisis brewing.
        I fear that ``propose now, study later'' has become the
    troublesome new theme in Washington. There have been a number
    of consumer-focused proposals--caps on late fees or interest
    rates, cuts to debit interchange, to name a few--where
    virtually no economic analysis has been performed to determine
    the individual--or collective--impact of these rules on
    consumers, small businesses, lower-income families, markets, or
    the economy.
        The debate should not always be about more or less
    regulation but about the right regulations to keep America's
    banking system the best in the world. I urge lawmakers and
    regulators to be thoughtful about the effect of arbitrary and
    unstudied regulatory proposals and their cumulative impact on
    the economy.
        Good regulations and good regulators are critical to
    maintaining the strength of our banking system. Our Nation
    should give thanks to Chairman Powell and Secretary Yellen for
    the tremendous work through some complicated economic times,
    including their work on sanctions following Russia's invasion
    of Ukraine and the steps they took during the regional bank
    turmoil this past spring. These are excellent examples of how
    regulators, working with the industry collaboratively, sharing
    information transparently--can protect the financial system and
    the country.
        To close, I would like to speak to my 300,000 employees,
    and actually maybe all bank employees around the world, of how
    I am proud of everything they do every day, in hundreds of
    communities around the world, serving consumers, businesses--
    large and small, farms, cities, schools, States, and hospitals,
    around the clock, 24/7. Thank you very much for the great
    things you do for this country.
        Chair Brown. Thanks, Mr. Dimon. Ms. Fraser, welcome.

                STATEMENT OF JANE FRASER, CEO, CITIGROUP

        Ms. Fraser. Thank you. Chairman Brown, Ranking Member Scott
    and esteemed Members of the Committee, thank you for the
    opportunity to speak to you this morning. As CEO, I have the
    opportunity to lead a 211-year-old institution that supports
    clients in nearly 160 markets around the world, and we have
    240,000 employees, of whom I could not be more proud to lead,
    and more grateful too.
        Through decades of geopolitical shifts and technological
    advances, we have seen how the U.S. banking system is truly
    unmatched. The isolated bank failures of the spring may have
    tested some of the confidence of our people in our industry.
        But I am proud of how our industry, including my peers
    sitting around me today, how we came together and worked with
    the Government to affirm the underlying strength and stability
    of the system.
        As we chart a path forward, we need to make sure we do not
    inadvertently upend the very system and unique system that we
    have. Our financial system is the envy of others because it is
    underpinned by the most competitive banking system and the
    deepest capital markets. We are home to banks of all sizes,
    each with an important role to play. Collectively, our banks
    serve as engines of growth, supporting businesses and
    households and promoting access to financial services in hard-
    to-reach communities.
        For American multinationals, global banks such as ours
    offer the size and scale to help them compete overseas, without
    having to rely on foreign banks. We finance supply chains and
    partner with America's top companies to bring products and
    services to American consumers at affordable prices.
        We use our robust balance sheets to fund transformational
    projects. Last year alone, Citi worked with State and local
    governments to raise or refinance nearly $31 billion in
    infrastructure investment. That included financing 35,000
    affordable housing units across 32 States. That was our 13th
    year as the country's number one affordable housing lender. And
    in addition, we provide a variety of products to drive
    financial inclusion and work with CDFIs and MDIs to reach the
    underserved. As a proud participant of the OCC's Project Reach,
    we are coleading the work stream that is focused on
    strengthening MDIs, and we are also engaged in initiatives to
    increase access to credit and reduce the number of Americans
    who are credit invisible.
        The strength of our financial system becomes most critical
    when the outlook for our economy weakens. Although we certainly
    do not see a drastic downturn on the horizon, history suggests
    that a recession is possible given the macroeconomic factors at
    play. And they include persistent inflation in services, rising
    debt, and a slowdown in global growth, as well as two major
    conflicts in Europe and the Middle East. And we are beginning
    to see some concernings in the lower FICO score segment of our
    customers, and this is unfortunately the very same group that
    feels any tightening of credit first.
        Raising capital requirements by as much as 20 percent on an
    industry that all participants believe is well capitalized is a
    bad idea in any environment. But it becomes even more
    problematic with economic uncertainty ahead. Almost every
    element of the Basel III Endgame proposal would make lending
    and other financial activities more expensive, especially for
    smaller companies and consumers. The most likely result of
    increasing the cost of banks to offer a variety of products is
    that it would move more activity into the less-regulated,
    nonbank sector, which carries its own risk for consumers and
    the stability of the financial system. It would also diminish
    our industry's ability to compete internationally, especially
    with our European counterparts.
        I raise these concerns as I know we all share the same
    goal, that is of maintaining a strong and competitive banking
    system that supports a resilient economy.
        Thank you, and I look forward to answering your questions
    later today.
        Chair Brown. Thank you, Ms. Fraser. Mr. O'Hanley, welcome.

            STATEMENT OF RONALD O'HANLEY, CEO, STATE STREET

        Mr. O'Hanley. Chairman Brown, Ranking Member Scott, and
    Members of the Committee, good morning. I am proud to serve as
    State Street's Chairman and CEO.
        To start, I need to be clear on what State Street is not.
    We are not a consumer bank, a commercial bank, a mortgage bank,
    or an investment bank. We do not serve individual customers
    directly, and we have no retail branches. What we are is highly
    focused on two lines of business: investment servicing and
    investment management.
        Our investment servicing business, which includes custody
    and related services, enables our clients to invest and execute
    transactions daily in markets across the globe in a safe and
    efficient manner. Our investment management division is a
    pioneer in indexing and quantitative investing, creator of many
    of the world's first ETFs, and the world's fourth largest asset
    manager. Our low-cost, diversified investment products are the
    building blocks of savings and investment across the world.
        Both business lines have the same corporate purpose, to
    create better outcomes for the world's institutional investors
    and the people they serve. Our direct clients are institutions
    across the globe--pension funds, mutual funds, central banks,
    sovereign wealth funds, endowments, foundations, and insurance
    companies, holders of assets for the benefit of individuals,
    such as retirees, savers, or students.
        I would like to focus a bit today on my very strong view of
    the value and importance of custody banks. Quite simply,
    strong, effective custody, combined with innovation in the
    asset management industry, is the backbone of our democratized
    capital market, providing investors access in a secure and
    cost-effective manner to the investment products they need to
    meet retirement and other financial goals.
        The safekeeping custody banks provide ensures investor
    assets are held and accounted for where and how they should be.
    This has not always been the case.
        From the collapse of investment trusts in the 1930s, to the
    failure of the Studebaker pension fund in 1963, to the
    misappropriation of the Mirror Group pension fund prior to
    Robert Maxwell's death in 1991, to the Madoff scandal uncovered
    in the late aughts, investors are put at risk when there is no
    proper custody of assets. In contrast, proper custody
    regulation, such as the Investment Company Act of 1940, and
    ERISA, coupled with the enormous investments in technology by
    today's custody banks has produced a modern-time near perfect
    track record of safekeeping assets.
        The recent events around FTX, which did not use bank
    custodians, demonstrate that more remains to be done to protect
    investors' assets and the financial system. In the emerging
    digital finance space, a comprehensive, effective regulatory
    framework is not yet in place, and the consequences are clear.
        State Street is subject to the highest levels of regulation
    and supervision. We are well-capitalized, both stressed and
    unstressed. Our balance sheet is conservatively positioned to
    deliver liquidity when our clients need it. We are subject to
    extensive resolution and recovery plans. We are a proven source
    of stability for capital markets and our customers in times of
    stress.
        Despite the challenges of COVID and the banking stress
    earlier this year, the eight GSIB banks before you have done
    their jobs exceedingly well, partnering with regulators during
    COVID and the SVB/First Republic crises, and providing
    stability to our financial system. I am proud of State Street's
    strong performance over these stressful periods.
        Looking forward, the geopolitical environment is complex
    and unpredictable. The U.S. and the global economic recovery is
    uncertain as we all navigate higher interest rates and debt
    levels. And the financial services regulatory environment in
    the U.S. is in flux, in many cases with unclear goals.
        From a State Street perspective, I am concerned with the
    U.S. banking regulators' capital proposal, which I fear could
    negatively impact the U.S. economy by limiting bank credit
    extension and impairing the ability of U.S. banks like State
    Street to continue to provide high quality 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 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 GSIB 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.
        Chair Brown. Thank you, Mr. O'Hanley. Mr. Vince, welcome.

               STATEMENT OF ROBIN VINCE, CEO, BNY MELLON

        Mr. Vince. Good morning, Chair Brown, Ranking Member Scott,
    and Members of the Committee. I have had the honor of serving
    as the CEO of BNY Mellon 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 U.S. 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 Mellon 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 are proud of our history and our leading market
    positions, we do not take them for granted. They are constant
    remainders to earn trust and to plan for the long term. We know
    that our economy will face challenges. It's not a matter of if
    but when, and for how long. It is 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 is a basic concept and a shared goal amongst our
    clients, regulators, and other stakeholders, and it is 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 am 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 have 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 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. U.S. 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
    address them in a responsible way.
        Finally, I would 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 BNY Mellon 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 am 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 first-time 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 am happy to answer any
    questions that you may have.
        Chair Brown. Thank you, Mr. Vince. Mr. Solomon, welcome.

             STATEMENT OF DAVID SOLOMON, CEO, GOLDMAN SACHS

        Mr. Solomon. 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, spanning 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 sizes, and
    individuals in achieving their financial goals.
        We sit at the center of the U.S. capital markets, which
    forms the bedrock of our financial system and helps drive
    America's innovation. In fact, 75 percent of financing for U.S.
    businesses and State and local governments is conducted through
    our capital markets.
        A core component of our firm lies in the talent and
    expertise of our people and their commitment to advising our
    clients on buying and selling businesses, raising capital, and
    managing risks. In particular, Goldman Sachs as a crucial risk
    advisor to help businesses of all sizes navigate through
    challenges and financial risks that range 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' capital has nearly tripled, our
    liquidity has increased more than five times, and our leverage
    has decreased by half.
        In addition, the Federal Reserve's 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 50 percent decline in equity prices
    within a year, in addition to a 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 for the economy throughout the
    pandemic, the Ukraine war, and regional bank failures. Federal
    Reserve Chairman Powell, Treasury Secretary 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 U.S. 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 U.S. structural debt
    continues to grow and become more expensive to finance, and the
    geopolitical stresses associated with Ukraine, China, and the
    Middle East could impact economic growth and stability around
    the world.
        Against this backdrop, one headwind to U.S. economic
    recovery is the finalization of the new capital rules, referred
    to as Basel III Endgame. These rules were conceived to create a
    common set of international capital standards without raising
    the aggregate amount of capital. However, the U.S. proposal
    does exactly the opposite. It is significantly more stringent
    than any other jurisdiction and would increase our capital
    requirements by about 25 percent.
        Although this increase in capital is a 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 two-thirds of both lending and capital
    markets activity in the U.S. In addition, since 2010, U.S.
    banks have underwritten 70 percent of equity financing and 60
    percent of U.S. dollar debt financing.
        These punitive regulatory measures also run the risk of
    harming U.S. competitiveness and capital market strength
    globally, as well as pushing activity overseas and outside of
    the regulated banking sector, without making the U.S. system
    far safer.
        Indeed, we believe the proposal results 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 the returns for retirees.
        Systemic financial stability is critical to the functioning
    of the U.S. 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 would be happy to take any questions.
        Chair Brown. Thank you, Mr. Solomon. Mr. Gorman, welcome.

           STATEMENT OF JAMES P. GORMAN, CEO, MORGAN STANLEY

        Mr. Gorman. Thank you, Chairman Brown, Ranking Member
    Scott, and Members of the Committee. Thanks for having us here.
    I am honored to represent the Morgan Stanley employees today,
    and for the last 14 years as their Chairman 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 changed
    since. While inflation has receded from its highs, the
    macroeconomic environment continues to be very complex. We are
    also witnessing, as is obvious, considerable geopolitical
    challenges today.
        At Morgan Stanley, in our Institutional business, we help
    advise private companies and public sector entities for mee
    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 are
    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 U.S. households, our services help families save
    money for retirement, and for college, and for a mortgage to
    build home ownership.
        The U.S. banking system remains strong, and is the envy of
    the world. It is an extraordinary asset for our country.
    Nowhere--not China, not Europe, not South America, not the
    U.K., not the rest of Asia--has a system remotely having these
    kinds of strengths.
        Large U.S. banks have undergone a dramatic change in their
    capital and liquidity profile since the financial crisis of 15
    years ago, when the U.S. Government, you, acted decisively and
    quickly in implementing the Dodd-Frank and CCAR 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 regulators 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,
    as you have heard today, on all the largest banks, the so-
    called Basel III Endgame, need to consider the full impact to
    the U.S. economy and what it will mean for U.S. small
    businesses and consumers. Regulations are only effective when
    they find that balance.
        Blanket increases in capital for the large U.S. banks, who
    already undergo annual rigorous stress testing and are required
    to maintain additional specific capital buffers already,
    additional increases are wholly unnecessary. It will make
    credit more expensive, as everybody has said, make it less
    accessible to consumers and businesses, while harming the
    competitiveness of this economy, one of the great strengths of
    the U.S. economy, the banking system. As it stands, the
    proposal would increase the cost of capital and borrowing
    across the U.S. economy, not just to large and small
    corporations, but to pensions, municipalities, and endowments.
        We hope the Federal agencies will be open 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 in. Many of
    those communities continue to experience social and financial
    challenges, and we are using our resources to help them.
        Finally, Mr. Chairman, in your letter dated November 6,
    2023, you asked me to provide information on a number of
    topics, and that in the attached addendum.
        Thank you again, Chairman Brown, Ranking Member Scott, and
    Members of the Committee. We look forward to your questions.
        Chair Brown. 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 are
    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 Basel III Endgame.
        If I am 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 increased capital requirements of Basel III,
    adopted as proposed? Any of you think you could not achieve the
    increased capital requirements, raise your hands if you think
    you cannot.
        [No hands raised.]
        Chair Brown. Thank you. I think you have indicated your
    firms will be able to meet the enhanced capital requirements.
    It leads me to conclude that the proposed capital standards are
    not too onerous.
        Mr. Scharf, Americans' support for unions, as we have
    discussed, is at a half-century high. Unions help ensure that
    workers 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 that short-staffed branches
    face. One worker said, ``The executives do not have to deal
    with the consequences of their decisions in a direct sense but
    we do.''
        Mr. Scharf, I appreciate your willingness to talk one-on-
    one about this with me. I remain concerned about unfair labor
    practices and reports that Wells Fargo is geared up in response
    to the union campaign. Will you remain neutral as these
    employees vote to organize?
        Mr. Scharf. Chairman Brown, I agree with your sentiment
    about the importance of the workers and our employees, and as
    you know we have done a tremendous amount to support them and
    will continue to do that. And we believe that it is best that
    we have a direct relationship with those employees, and we do
    intend to exercise our right to speak with them, to make sure
    that they make an informed decision.
        Chair Brown. Thank you. It was an opportunity to show the
    American public truly a new day at Wells Fargo, and I am sorry
    that you have failed to show that real change is afoot at your
    bank.
        Mr. Scharf, Mr. Moynihan, Mr. Dimon, and Ms. Fraser,
    according to CFPB, failure to invoke the Servicemembers Civil
    Relief Act interest rate reductions cost servicemembers $100
    million between 2007 and 2018. You can unilaterally act to
    ensure servicemembers receive those benefits, the SCRA benefits
    they are entitled to.
        Do your banks proactively check authorized military data
    bases to identify accounts that may be eligible for SCRA
    protections? Begin, Mr. Scharf.
        Mr. Scharf. Chairman, we have huge respect for those that
    have been in the military. Specifically, to your question, I am
    not sure, but certainly we will check and get back to you.
        Chair Brown. OK. Thank you. Mr. Moynihan.
        Mr. Moynihan. We, again, follow the SCRA provisions. On an
    annual basis we retroactively, looking back, after we get
    notification, about $180 million a year we send back to those
    servicemembers, including fees, which we are not required to
    rebate, but we go ahead and rebate them. So I will check to
    make sure we are looking at all available means, but we comply
    with the law.
        Chair Brown. Thank you. Mr. Dimon.
        Mr. Dimon. I am sure we comply with the law, but it is an
    opportunity to say that we have hired 18,000 veterans in the
    last couple of years. We support the United States military. We
    have hired 3,000 military spouses. So we stand 100 percent
    behind the servicemembers that we hold in the highest regard.
        Chair Brown. Thank you. Ms. Fraser.
        Ms. Fraser. Similarly, Chair Brown, we are very proud to
    employ many veterans, and we are incredibly grateful for
    everything that they do for our country. We make extensive
    investments in ensuring that we comply with the laws, and we do
    indeed tap into the database.
        Chair Brown. Thank you. Thank you for your candor about
    that. I urge you all to proactively check whether customers are
    eligible for SCRA benefits. It is the type of work that you
    could be doing. The answers were helpful, and we will be back
    with all four of you about how we can help do that proactively.
        There is plenty we do not agree on. It is pretty clear. But
    I also want to finish somewhere we do agree, supplemental
    security income. SSI provides a lifeline for 300,000 Ohioans,
    nearly 8 million Americans living with disabilities. The
    problem is SSI's eligibility rules have not been updated by
    Congress--that is on us--in 40 years. They are 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
    Rounds of this Committee to raise the program's asset limit and
    stop punishing people for working and saving.
        Mr. Dimon, I know JPMorgan Chase is supportive of raising
    the asset level. I thank you for your leadership on this. Tell
    us briefly how it affects JPMorgan and why you are so
    supportive, and then I would like to ask all of you if you
    would join Mr. Dimon and Senator Rounds and me in support. Mr.
    Dimon.
        Mr. Dimon. Senator, thank you. We have employees who do not
    want us to increase their salary because if it goes over a
    certain amount they cannot get that benefit, which they are
    entitled to, or they cannot have assets over $10,000. So this
    definitely should be fixed. We fully support it, and try to be
    as helpful as we can.
        Chair Brown. Thank you. Mr. Scharf, would you agree to
    support Mr. Dimon's position and mine?
        Mr. Scharf. It sounds like something that we would be
    willing to support, but we would like to take a look at it.
        Chair Brown. Mr. Moynihan.
        Mr. Moynihan. [Inaudible.]
        Chair Brown. Ms. Fraser.
        Ms. Fraser. Fully and wholeheartedly.
        Chair Brown. OK. Mr. O'Hanley.
        Mr. O'Hanley. We do support it.
        Chair Brown. Thank you. Mr. Vince.
        Mr. Vince. We do support it.
        Chair Brown. Mr. Solomon.
        Mr. Solomon. We do support it.
        Chair Brown. Mr. Gorman.
        Mr. Gorman. Yes.
        Chair Brown. Thank you all. Senator Scott.
        Senator Scott. Thank you, Mr. Chairman. A question for the
    panel. 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?
        Mr. Scharf. Senator, we do have concerns that some of the
    items in the proposal will lead us to either increase the price
    or to reduce the amount that we lend.
        Mr. Moynihan. There is a chart in the MPR that looks
    deceivingly simple. It says here is the RWA before the proposal
    and here is the RWA after the proposal. Is says 24 percent
    increase. That is a reduction in capacity of this industry to
    service clients, no questions asked. The capital that could
    have been used to create those additional RWA incremental has
    to be used to sustain the same activities we have today, with
    no risk from the day before to the day after in what the
    enterprise does.
        That is the point that we are trying to make is that this
    is about using our capital, whether we have it or not, whether
    we have it to meet the new requirements to support additional
    activity, not the old activity, which does not help the
    American economy.
        Senator Scott. Thank you.
        Mr. Dimon. I think one of the frustrations you hear from
    this group up here is this question should have been asked
    before it went out. We have to hold 30 percent more capital
    than international banks in the United States of America for
    every loan. A lot of loans have now become unprofitable. There
    are a lot of loans that do not make sense for our company
    anymore--small business, CDFI, solar, wind, middle market
    loans, certain trades you do with pension plans, et cetera.
        The work should have been done beforehand. By law, the QIS,
    the qualitative impact, should have been done beforehand. We
    had 10 years to do this, and it is shocking to me that after 10
    years we are talking about what is it going to do for small
    business, and we have to analyze it today. Now are we all going
    to fill out 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 am not sure it was shared fully among
    all the regulators. This should be relooked at.
        Senator Scott. And before I go to Ms. Fraser, my assumption
    is everyone is going to say ``with consequences that will be
    negative.''
        So let me ask a different question to you, Ms. Fraser. The
    impact, and perhaps the unintended impact, from Basel, the
    Endgame, on customers, we so often talk about the American
    consumer as if there is 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 rural communities that need derivatives? Walk me through
    that for a second.
        Ms. Fraser. Certainly, and thank you very much for your
    question, Senator. This will, to your point, increase the cost
    of borrowing for farmers and rural communities. It could impact
    them in terms of their mortgages. It could impact their credit
    card. It could also, importantly, impact their cost of any
    borrowing that they do.
        And let me give you an example. For a farmer, hedging your
    commodity costs and your commodity prices is an absolutely
    fundamental piece of providing stability and ability to sleep
    at night. Under the Basel III proposal the cost of the
    derivatives would increase quite materially, and that would
    therefore 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 is the cost of borrowing, it is the access to credit,
    and it is some of the fundamental tools that they need to
    manage their stability of their income.
        Senator Scott. Mr. Solomon, you said something earlier that
    I thought was really important, that as we discuss the Basel
    Endgame proposal and its impact on lending and on folks like me
    that come from poverty or are looking for the ability to
    achieve the American Dream, someone would say contrary to what
    I am talking about maybe there are other points that are
    important that I am 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 2007-2009 to make
    sure that our financial institutions are able to meet
    obligations and responsibilities under an even worse case
    scenario? And your opening comments reflected that, yes, we can
    meet even a more disastrous crisis.
        Can you walk through the importance of the regulatory
    burden that exists and how the Basel Endgame would make it even
    harder for small business borrowers but not necessarily making
    our economy safer?
        Mr. Solomon. Sure. Thank you for the question, Senator. I
    tried to highlight, in my opening comments, 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. [Unclear] a 50 percent decline in equity prices
    over a 1-year period, on top of then a simultaneous equity
    market shock that has both as much as a 30 percent
    instantaneous equity decline. So very, very severe shocks that
    we have 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 percent
    capital on the largest banks, with lots of individual
    provisions that affect different activities, I think is
    ultimately punitive to economic growth and does not strike the
    right cost-benefit analysis.
        We, of course, need to make the system secure. The system
    is in good shape. We have seen that under stress. That does not
    mean there are not things that can be done at the margin. But
    this is a wholesale change that leads to problems.
        Ms. Fraser highlighted one example, taking about farmers.
    You can look at airlines hedging jet fuel, if you want to look
    at other derivatives which obviously get passed on to
    consumers. You can look to gas being hedged, and utilities,
    which obviously gets passed on to consumers. And then you can
    look at other transactions. There is a provision under the rule
    called SFT, which allows institutions like ours to borrow
    securities from pension plans and give them cash. That
    increases the returns and allows them to use their assets to
    increase their returns. Capital would increase by 8 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.
        Senator Scott. Thank you.
        Chair Brown. Thank you, Senator Scott.
        Senator Reed, from Rhode Island, is recognized.
        Senator Reed. Thank you very much, Mr. Chairman, and first
    let me thank you for your support of our military men and
    women. They are superb, and their spouses are superb, so thank
    you for helping them out.
        With respect to the legislation that we passed several
    years ago, the Military Lending Act, I think the key aspect is
    the 36 percent interest cap. And I think it is such a critical
    aspect it should not be just a provenance of military personnel
    but every American.
        I think essentially your banks collectively have made about
    $219 billion in profit this year, and I believe that your
    credit cards are not beyond 30 percent. So the 36 percent
    interest rate seems to be very appropriate. And so I can go
    down, starting with Mr. Scharf, would you support a national 36
    percent interest cap?
        Mr. Scharf. Senator, I appreciate your thoughts on this
    one. I think we would be concerned about setting a flat number
    without really understanding what the impact would be in
    different inflationary environments.
        Senator Reed. Mr. Moynihan.
        Mr. Moynihan. Senator, it is not really relevant to us. We
    do not engage in prime lending. I think, as Mr. Scharf said, it
    is a question of balance. What would it push outside the
    system, what would it make not available. But it is just not a
    relevant question for us because we do not have rates that
    high.
        Senator Reed. Well, I guess in a general sense it is
    relevant because most of the people who use this adversely are
    payday lenders and rather dubious operators who will induce
    borrowers into arrangements which are something you would not
    even tolerate. So I think we have reached a point now, after
    several years of questioning you all--and I am not picking on
    you, Mr. Moynihan--to come to a conclusion, and I think the
    conclusion is it should.
        Mr. Dimon, please.
        Mr. Dimon. We do not engage in that. I completely agree
    with your intent, and I think there should be a focus on payday
    lenders and check cashers and sort of things like that. And we
    would love to help you design it so it covers the intent
    without any bad consequences. There are some people that make
    very small loans who it may stop them from doing that and
    actually push people into payday lending.
        Senator Reed. Ms. Fraser, please.
        Ms. Fraser. Senator, thank you for the question. We applaud
    the intent of what you are trying to do. I think as large banks
    we are very mindful of our responsibilities in protecting
    customers from abuses. Experience has shown that caps diminish
    access to credit can do in the system and the Federal Reserve
    has a study to show that. So I think, as with most of my
    colleagues, we believe there are other ways to achieve the
    intent, but we would be supportive of following up with you on
    how.
        Senator Reed. Mr. O'Hanley.
        Mr. O'Hanley. Senator, we do not engage in consumer lending
    but we do support what you are trying to achieve there.
        Senator Reed. Thank you, sir. Mr. Vince.
        Mr. Vince. Senator, we are also not in the consumer
    business, but we support the intent.
        Senator Reed. Thank you. Mr. Solomon.
        Mr. Solomon. We have a very, very small business in the
    consumer area but we support the intent.
        Senator Reed. Thank you.
        Mr. Gorman. I support it, Senator, for what I consider
    normal economic times. I actually came to this country and
    borrowed at 24 percent, so not quite your 36. I found that
    particularly heinous, but it turned out OK. But no, I think
    anybody who is forced to borrow at 36 percent, that is sort of
    unforgiveable.
        Senator Reed. I was living in the United States when I was
    borrowing at 24 percent. In fact, I recall we had to repeal the
    Rhode Island legislation because it was 21 percent. Again, I
    hope to work with you on this because I think it is very
    important, and I do not think it will cause the disruptions
    which you might anticipate. I think it can be done.
        And I think the other thing that should be done, and I know
    many of you are doing it, is to go out aggressively and start
    getting people banked. One of the reasons that they find
    themselves borrowing money from unscrupulous characters is
    because they have not been fully introduced to the banking
    system, understand that it is relatively easy, and it is much
    more appropriate than some of these other arrangements.
        But thank you all, and we will continue to work, and any
    advice, I would appreciate it. Thank you.
        Chair Brown. Thank you, Senator Reed.
        Senator Rounds, of South Dakota, is recognized.
        Senator Rounds. 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 are 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 have seen regulations 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 Barr said himself that the Basel III Endgame
    proposal is, and I quote, ``projected to raise capital for
    large banks. This may result in higher funding costs. But this
    only half the story,'' end of quote. I want you to help tell
    the other half of the story.
        Now, 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, I am going to apologize in advance because I
    think folks hate to be put in that position. I think it is
    critical that you get to tell the other half of that story.
    None of you raised your hands when you said that it was a case
    of where you could not meet the capital requirements. The issue
    is what damage it does to the economy when you are expected to
    raise that and the folks who need that capital.
        So here are my questions, and I am going to ask you 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 first-time homebuyers?
        [All hands raised.]
        Senator Rounds. Do you believe, in its current form, could
    these regulations negatively impact those saving for
    retirement?
        [All hands raised.]
        Senator Rounds. Do you believe that these regulations could
    negatively impact our farmers and our ranchers?
        [All hands raised.]
        Senator Rounds. And do you believe that these regulations
    could negatively impact small business owners?
        [All hands raised.]
        Senator Rounds. See, this is the rest of the story.
    Sometimes we think that we are 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 is 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 Biden took office. Bidenomics has led to a
    family of four in South Dakota needing to pay over $900 more a
    month just to get by for normal living expenses.
        I am going to say this again: regulation does not exist in
    a vacuum, and the Federal Reserve must take this into account
    as they work toward finalizing their rulemaking.
        I will not embarrass you by asking you to raise your hands
    anymore. I apologize for that. But I think it is 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, U.S. Federal debt levels have climbed
    further, and annual interest on the debt is slated to reach
    over $1.4 trillion in the next decade, almost outnumbering all
    discretionary spending. I am 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 of debt in the coming
    decade. I am not only concerned about who is going to buy this
    massive issuance of Treasuries, but with a Federal funds rate
    of 5 percent 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 U.S. Treasuries market the dollar and
    the general economy?
        Mr. Solomon. Thank you for the question, Senator. This is a
    significant issue and one I tried to highlight in my opening
    remarks. The growth of the U.S. Treasury debt has been very,
    very significant over the last 15 years. It has more than
    tripled. That debt will continue to grow as the cost of
    refinancing that debt will also grow. The Office of Budget and
    Management, looking out through the decade, estimates a 3.5
    percent cost to refinance the debt, but I certainly think there
    are scenarios where that cost could be higher.
        You know, this cost obviously hampers our ability to invest
    in other things, 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
    of that burden of the debt to future generations, based on
    decisions we have made, is something that we are going to have
    to get focused on. As the cost of debt goes up, it certainly
    can create volatility in our funding treasuries, it can create
    volatility in the Treasury market.
        One of the things I am also concerned about, when I look at
    Basel III 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 on 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. So that is another
    risk that I think we need to look at carefully.
        Chair Brown. Thank you, Mr. Solomon.
        Senator Rounds. Thank you, Mr. Chairman.
        Chair Brown. Senator Tester is recognized, from Montana.
        Senator Tester. Yeah, I want to thank the Chairman and
    Ranking Member for holding this hearing, and I want to thank
    the panelists for your testimony and for being here today. And
    I also want to echo Senator Reed's comments on your support for
    the military, both active duty and veterans. Them and their
    families are very, very important.
        I serve as the Chair of the Defense Appropriations
    Committee. I spend a fair amount of my time thinking about
    national security, how to protect against folks who want to do
    this Nation harm, terrorist organizations, as well as foreign
    adversaries.
        You all have responsibilities, including legal
    responsibilities, to make sure that you are preventing hostile
    Governments, like Iran, who would like to see the U.S. not
    exist, from financing terrorist operations and other illegal
    activities with fund that have gone through your institutions.
        So this would be a question for Mr. Gorman and then, not
    for any particular reason, just because he is right in front of
    me, and then if 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 are followed so that your
    institutions do not end up inadvertently financing illicit
    activities?
        Mr. Gorman. Senator, thank you for the question. Obviously
    it is critical as a good player in this country to do our best
    to work with the Government.
        There are two things that I would just point out. The first
    is what I would call our cybersecurity efforts, to understand
    incoming into the financial system. Several years ago, when I
    started this job, I believe we were spending about $50 million
    on that activity. The number is closer to $1 billion now. 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 second, as it relates to specific individuals, bad
    actors, Governments, we have an enormous compliance effort
    focused on anti-money laundering to ensure that they do not get
    in, by verifying the source of where their funds come from.
    Obviously we deal with not as many clients 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 is an extraordinary effort with several hundred
    employees constantly working. Interestingly, I think the
    advances in AI will be a real strategic weapon in this regard.
        Senator Tester. Very good. Does anybody have anything
    different to add? All right. Thank you.
        Along those same lines, on anti-money laundering
    protections and national security safeguards, Mr. Gorman talked
    about cybersecurity. Mr. Solomon, would you like to add
    anything in regard to anti-money laundering protections that
    you have?
        Mr. Solomon. I do not have anything to add that is
    materially different from what Mr. Gorman stated. It is an
    enormous focus. We file thousands of SARs in the course of our
    Compliance Department's financial crime team working every day,
    but no difference in that focus and the intensity of that
    focus.
        Senator Tester. Very good. Earlier this year, Mr. Scharf,
    Wells paid nearly $100 million in penalties to the Fed and OFAC
    for violating sanctions against Iran, Syria, Sudan. I think we
    can all agree that is not a good thing. But what is your bank
    doing to make sure that these sanction violations never happen
    again?
        Mr. Scharf. Sure, Senator. Preventing bad actors from
    abusing our services is a top priority. We have extensive
    systems in place that we are constantly looking to make sure
    that they are as complete as they can possibly be. We work in
    industry groups, we work with the Government, and we work with
    the regulators to make sure that we are doing everything we
    possibly can to prevent that abuse.
        Senator Tester. Thank you. This goes to the nonbanking
    world. Some of you have talked about the fact that, and maybe
    all of you talked about the fact that Basel will force money to
    go outside the traditional banking system into the unregulated
    banking system. Ms. Fraser, could you just talk about what kind
    of impact that you see that having from a--I do not know if you
    can project percentage of money that you would see going into
    the nonbanking system, but it would be interesting because I
    remember in '08 that was the problem, one of the problems.
        Ms. Fraser. Yes, Senator, we are worried about migration of
    financial activities into the nonbanking sector, particularly
    in a period where there is tremendous technological innovation,
    and making sure that we maintain the safeguards that we all
    invest billions of dollars in, 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, safeguard the system, and also the critical
    role that all of our banks play in the global financial system
    as a strategic asset of the United States.
        So we are very concerned that this will undermine some of
    the strengths and foundations of the unique American financial
    system.
        Senator Tester. Thank you all. Thank you, Mr. Chairman.
        Chair Brown. Thank you, Senator Tester.
        Senator Tillis, of North Carolina.
        Senator Tillis. Thank you, Mr. Chairman. Thank you all for
    being here and for the preparation. I am actually very pleased.
    I thought it was going to be the annual flogging of the GSIBs,
    but people are asking very serious questions and I am glad to
    hear it.
        I have got a few serious questions for you all. No. 1, I
    want to start by saying--because thank goodness you are not the
    head of an organization that has 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 have got a top financial
    regulator that gets a pass. I do not expect you to respond to
    that, but it is true.
        That same financial regulator has implemented an SEC cyber
    reporting rule that now we have evidence that the ransomware
    companies are exploiting. Right? OK, this is the mandatory
    cyber reporting requirement that now a ransomware company has
    gone on record as reporting. I do not even want you all to
    respond to that, but we have got detailed questions. We are
    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 have got
    to try and repeal this, and I am putting forth my first CRA to
    try and do that next week. Hopefully the SEC 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 is all on that. I want to go back to the operational
    risk question, and I think that Senator Rounds did a good job
    of saying this Basel III Endgame is bad. It is not very well
    thought out, and hopefully it is going to look very differently
    before it gets promulgated. But who would like to speak for
    this group around the impact on operational risk just one more
    time, and how we think that they have missed it in terms of the
    benefit?
        Mr. Gorman, if you could do it in 30 seconds I would
    appreciate it.
        Mr. Gorman. It makes no sense. I mean, that is the bottom
    line. I have been at this for a long time. I served on the New
    York Fed Board for years. I have seen a lot of rules. Some of
    them make sense, and it is a question of how far you turn the
    dial. This does not make sense. You should not punish
    institutions for creating fee-based businesses.
        Senator Tillis. Is there any evidence that work has been
    done to really understand the fully burden costs and the impact
    of this rule on the industry? And more importantly, people like
    my dad who would get 90-day notes to fund his construction job
    that I used to work on. Is there anything out there that I have
    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?
        Mr. Gorman. I am not aware.
        Senator Tillis. OK. Thank you.
        Mr. Solomon, would you go back to the--I think you
    mentioned SFTs, securities financing 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 rule,
    in about 30 seconds?
        Mr. Solomon. Sure. Securities financing transactions are
    transactions where institutions like ours borrow stock
    securities from pensions. We pay them cash. They can then
    invest that cash and earn returns. The capital in Basel III
    attributed to those transactions goes up by eight times. It
    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 their returns
    through this activity.
        Senator Tillis. 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.
        Mr. Solomon. They are an end user that would be impacted.
        Senator Tillis. OK. Let's talk more about just--actually, I
    have to get something off my chest because I have heard more--I
    am kind of doing that, you all may have noticed--but I
    understand that you are a gaming CCAR, that somehow that you
    can game stress testing. That is what I am hearing from
    regulators, I am hearing from my colleagues on the other side
    of the aisle.
        Give me an idea of how you game the system. I actually
    thought that this was a regimen that is provided by a
    supervisor, an examiner, and you have got to execute it, and
    then they have to measure it. Is that how it works? Do any of
    you here want to share with me how you game the system? I used
    to work at Pricewaterhouse. We did not have a practice on
    gaming CCAR or stress testing at the time. Have you all cracked
    that code?
        How many of you all think it is absurd to think that people
    would actually assert that you could game a stress test?
        [No response.]
        Senator Tillis. OK. How many of you think that you are
    spending more and money on trying to satisfy stress test
    requirements at the expense of looking at real risks that are
    unique to your banking activities?
        Mr. Dimon. I will take this one.
        Senator Tillis. OK, Jamie.
        Mr. Dimon. The CCAR test is 200,000 pages long. Most of us
    do 10, 20, 30, 40, 50 tests a week. We are quite worried about
    risk. It is one test. It is to the nth degree. It is a big
    black box. So we all agree on stress testing. That thing is
    just out of control.
        Senator Tillis. Yeah, and 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 supervision, 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.
        Chair Brown. Thank you, Senator Tillis.
        Senator Menendez, of New Jersey, is recognized.
        Senator Menendez. Thank you, Mr. Chairman.
        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. Dimon, how much money has JPMorgan Chase returned to
    customers in the form of redresses and payments at the
    direction of CFPB?
        Mr. Dimon. I do not know the number.
        Senator Menendez. Let me help you--$360 million. Mr.
    Moynihan, same question.
        Mr. Moynihan. I do not know the number specifically.
        Senator Menendez. $819 million. Ms. Fraser.
        Ms. Fraser. I do not know the number either, Senator.
        Senator Menendez. One billion. Mr. Scharf.
        Mr. Scharf. I do not know the number, Senator.
        Senator Menendez. Well, it is over $2 billion.
        So from just the four of you that is over $4 billion. It is
    amazing you do not know the number because they are not small
    in nature. Over $4 billion returned to hardworking consumers in
    the past dozen years. And yet this critical agency is under
    constant attack by my Republican colleagues. A lawsuit before
    the Supreme Court is threatening its very existence. And time
    and time again we have seen why the CFPB is so necessary and
    why I intend to continue fight for it. Otherwise, that would
    have been $4 billion out of the pockets of U.S. 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 in 2022, in overdraft and nonsufficient fund fees.
        Ms. Fraser, your bank eliminated overdraft fees last year.
    Is that not correct?
        Ms. Fraser. Yes, Senator.
        Senator Menendez. Is it fair to say that Citi is still a
    profitable bank?
        Ms. Fraser. Yes, Senator.
        Senator Menendez. Did overdraft fees upend your business
    model?
        Ms. Fraser. No, Senator. We work hard to protect our
    customers and make sure that they do not fall into overdraft.
        Senator Menendez. While the rest of the banks here that
    have retail operations continue, to my knowledge, to charge
    overdraft fees.
        Mr. Moynihan, Mr. Scharf, Mr. Dimon, you are all aware that
    Black and Hispanic households disproportionately incur
    overdraft and NSF fees. Correct? So you know that? Yes or no.
    Could you give me a verbal answer, please.
        Mr. Dimon. I believe so.
        Mr. Moynihan. If that is your statistic, I do not have any
    reason to challenge it.
        Mr. Scharf. The same for me.
        Senator Menendez. Well, the reality is that, again, it is
    amazing you do not know that, because study after study have
    shown that the answer is yes to that question. So I suggest you
    call Ms. 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 is
    something that you could do that would change the course of
    events for a significant part of the consumer base.
        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. That is
    not just harmful for consumers, I think it is dangerous to the
    financial system. The CFPB does not just issue regulations.
    They also provide safe harbor provisions like the Qualified
    Mortgage Rule, which protects mortgage lenders from certain
    lawsuits.
        Mr. Scharf, Mr. Moynihan, Mr. Dimon, and Ms. Fraser, if you
    were to lose this safe harbor would it impact your bank's
    mortgage lending?
        Mr. Moynihan. I do not think it would make a difference. We
    did mortgage lending before this, and we would do it
    afterwards.
        Mr. Dimon. I think it completely depends on the actual
    detail in the ruling.
        Mr. Scharf. The same. I would like to know the specifics to
    draw a conclusion.
        Ms. Fraser. The same as my colleagues. I would need to
    understand the specifics more.
        Senator Menendez. Well, I am saying if you would lose it,
    not of it is limited. If 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 are 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, the number of physical bank branches in the U.S.
    has 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.
    And I understand part of this is mobile and online banking, but
    there are many who do not have the abilities to do that.
        What are some ways that we can ensure communities continue
    to have access to basic banking services?
        Mr. Moynihan. Thanks, Senator. I think if you look at the
    people who have big branch systems we maintain approximately 30
    percent of our branches, Mr. Scharf said earlier, and it is the
    same for us in LMI neighborhoods.
        But importantly, one of the things that has gone on, and
    you mentioned this, we are up to 97 percent of our LMI
    customers use digital banking, which then is more convenient,
    more safe, and reaches them where they are. And so we manage
    that carefully to make sure we cover every market and make the
    calculations. You can see that in the published statistics.
        But if you look at what we do as a group of institutions,
    we maintain that presence but we have driven the digital, and
    we have driven the types of accounts that are more appreciated,
    and that is why we are bringing 2 million people into the
    banking system that were unbanked a few years ago. It is
    largely these larger banks that have driven that.
        Senator Menendez. Well, I will close by simply saying I
    would commend to all of you that look at how your practices
    affect particularly minority communities, including on this
    issue. You have a disproportionate effect, and there is
    something you can do about the largest growing parts in the
    American society that would be beneficial to you and beneficial
    to them.
        Thank you, Mr. Chairman.
        Chair Brown. Thank you, Senator Menendez.
        Senator Kennedy, of Louisiana, is recognized.
        Senator Kennedy. Unlike some, I do not think you are
    crooks. In fact, you are all American companies and I am 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. Dimon, since the last time the Federal Government
    raised your bank's capital requirements in Dodd-Frank, and
    otherwise, have you had a depositor run on your bank?
        Mr. Dimon. No, we have not.
        Senator Kennedy. Have you failed a stress test?
        Mr. Dimon. We have never failed a stress test, no.
        Senator Kennedy. Have you ever reached a point where your
    liabilities were greater than your assets?
        Mr. Dimon. Absolutely no.
        Senator Kennedy. Well, unfortunately, we have had three
    banks this year that did go broke. They are mid-sized banks.
    You know them: Signature, Silicon Valley, First Republic. We
    have held hearings. 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 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, or 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 did not have the authority to stop it.
        Mr. Dimon, don't you find it ironic, the FDIC is now
    turning to you and saying, ``You know our track record,'' which
    is blemished at the FDIC. ``Your bank is not broken but we are
    going to tell you how to fix it.'' Do you find that ironic?
    They are going to tell you how to fix it based on standards put
    together by bureaucrats in Basel,
        Switzerland, not by the U.S. Congress. Do you find it
    ironic that they are telling you this and proposing this? Isn't
    that kind of like being given gun safety advice by Alec
    Baldwin?
        Mr. Dimon. Should I answer the question? So the major risk
    of those banks was hiding in plain sight, which was interest
    rate exposure. That was known to most people who actually could
    read a balance sheet and read their financial statements, and
    that is true. I also think----
        Senator Kennedy. The FDIC said they did not know. They were
    busy doing whatever else they were doing at their Gomorrah of
    carnal abuse over there.
        Mr. Dimon. I also do think you are making a good point,
    that some of these rules were put in place, and some folks
    mentioned here are pushing business outside of the banking
    system. And to point out exactly what that is, it is almost 80
    percent of the mortgage business today, it is half of the
    leveraged lending business today, and it is a bunch of other
    things which people do not actually see about the plumbing of
    the system. And I do think it is adding risks about
    transparency, and a very important thing about the impact of--
    --
        Senator Kennedy. I am going to stop you, Mr. Dimon, because
    I am going to run out of time. How is this even legal, under
    West Virginia v. EPA? You have bank regulators without clear
    direction from Congress, who are borrowing standards from other
    regulators in Basel, Switzerland, imposing them on you without
    clear directive from Congress. It clearly falls under the major
    questions doctrine. Why does this not violate West Virginia v.
    EPA? You do not have to know a law book from an L.L. Bean
    catalog to see that. Why does it not violate the law? Anybody.
        [No response.]
        Chair Brown. Senator Kennedy's time has expired. Senator
    Warner, from----
        Senator Kennedy. Well, Ms. Fraser was about to answer.
        Chair Brown. Would you like to answer, Ms. Fraser? I
    thought you gave her time. Proceed, please.
        Ms. Fraser. I think we very much appreciate your points of
    view, Senator, on this topic, and I think any of us would
    concur while violations of law are things that we will debate
    as a last record, we would be prepared to do so because there
    is clarity in the law, and that we abide by it.
        Senator Kennedy. Thank you.
        Chair Brown. Senator Warner.
        Senator Warner. Thank you, Mr. Chairman. I do find that it
    is kind of an interesting presentation, the yin and yang of
    whether we are the source of all challenges or the regulators
    are the source of all challenges. Somehow I do not believe
    either presentation represents the truth. My questions on Basel
    III have been raised already. I have indicated I think the
    timing at this moment is very problematic, with interest rates
    as high as they are. And obviously members of the Civil Rights
    Committee have raised this as well.
        But before anybody smiles too much, I could also tell you
    that I get extraordinarily frustrated that any time there is
    any proposed new regulation or rule, the normal industry
    reaction is, ``Oh, my God, the sky is falling,'' and the same
    response is always, ``If you do this, it is going to limit
    access to capital on Main Street.'' And I actually do think
    Senator Menendez's presentation, particularly on CFPB in terms
    of dollars returned was pretty good.
        But I want to actually go to an issue that I have 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. At the 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
    banks that failed this year, particularly in terms of SVB and
    Signature, they did not even have procedures in place to know
    how to utilize that tool.
        So I think I will start with Mr. Moynihan on this one. I
    know there was guidance given out this past July to say
    everybody ought to get their act together, and candidly, I do
    not have a lot of sympathy because of the concern that many of
    you and other colleagues have raised that, oh my gosh, if I go
    to the discount window that is going to raise a stigma with the
    market. Well, you cannot complain about new regulations if you
    are not using existing tools.
        So beyond the guidance that was given, why should we not
    have, maybe on some kind of random basis, a mandatory use of
    the discount window so that we could start erasing that stigma
    to make sure that every bank, from large to small, knows how to
    use it. Because at least in terms of liquidity, this would be
    the most powerful tool of all. Mr. Moynihan.
        Mr. Moynihan. So, Senator, I think two things. One,
    readiness to use it, and I think you would find that the
    institutions all here, because of the amount of regulation we
    have already to use it, and that was an issue of readiness that
    you rose.
        But the second question is the stigma, and we could not
    agree more, whether it was in '07 and '08, whether it was in
    2020, whether it 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, as a lender
    of last resort, and every time we are 100 percent reluctant to
    use it, as an industry, because it looks like we are weak. And
    we have got to figure out a way to change that.
        Senator Warner. And that is, again, where I think you see
    folks on my side of the aisle complain that if you are not
    using existing tools, well maybe you ought to look at new
    tools. And I would love to engage with you. I am 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 is a stigma problem but we do
    not have a plan to address it means that somebody that might be
    sometimes sympathetic to you, if we cannot use that tool my
    sympathy is going to go down dramatically.
        Mr. Moynihan. We agree with you, Senator. We will work
    with----
        Senator Warner. Let me try to hit a couple of other
    questions. Artificial intelligence, I know, has been touched. I
    personally am surprised that there was not greater concern
    about AI in terms of using its ability to disrupt faith in the
    public markets. To me it feels like if there was ever a time
    and a tool that has such wide-reaching implications that FSOC,
    which I know whose record has been somewhat mixed, but I
    strongly believe FSOC ought to take on the responsibility
    around looking at artificial intelligence, from its safety and
    soundness to the overall system.
        Ms. Fraser, we have talked about this a little bit, but
    what do you think on that issue?
        Ms. Fraser. Thank you, Senator. You are raising a very
    important issue and topic that has all of our attention at the
    moment. When we look at artificial intelligence it is both an
    opportunity and a threat. On balance, we all hope it will be an
    opportunity to improve the strength of the financial system and
    of human beings, but the threats are also quite considerable.
        We have a lot of regulation that is in place right now that
    works very well to safeguard our financial system. We think
    that regulation should continue to be used to guide----
        Senator Warner. Let me just say, I know my time is up, but
    I do think FSOC 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 LMI communities. Those of you who are not participating,
    this is bipartisan led by Deputy Secretary Adeyemo out of the
    Administration, I hope you will consider it.
        Thank you, Mr. Chairman.
        Senator Kennedy. I will yield some of my time to him,
    Senator.
        Chair Brown. You have no time to yield.
        [Laughter.]
        Chair Brown. Senator Hagerty, of Tennessee.
        Senator Kennedy. I tried, Warner.
        Senator Hagerty. Thank you, Mr. Chairman, and to all of
    you, welcome. I know how much you must look forward to these
    meetings that we have here.
        But today my colleagues have focused a great deal on the
    Basel III Endgame. It is something I am deeply concerned 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's
    sake. I have the very difficult time when massive bodies of
    regulation are put forward and bureaucrats here try to tell us
    that the impact is going to be minimal.
        I would like to quote specifically from Vice Chair Michael
    Barr, who is leading the effort on the Basel III Endgame. He
    says that the impacts of the new requirements they are
    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 these
    massive regulatory proposals they are putting forward with
    Basel III is going to have a very minimal impact on your banks.
    And I would just like to go back to the tool that everybody
    else is using. Would anybody here that believes that the impact
    of Basel III would be minimal raise your hand, please.
        [No response.]
        Senator Hagerty. I would like the record to reflect, Mr.
    Chairman, that nobody raised their hand. No one believes that
    the impact will be minimal.
        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 a refusal to take into account the
    knock-on effects of the regulations.
        Mr. Dimon, I would like to come to you. Your bank has
    stated publicly that the Basel Endgame proposals would increase
    capital requirements by some $50 billion. That is not an
    insignificant number. There are 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.
        Mr. Dimon. I think 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. In the long
    run, no one tries to be rapacious with customers or employees
    in the short run.
        So it would take a lot of loans and immediately make them
    unprofitable, and I will give you a specific example--
    mortgages. I have already told our people that mortgages should
    not be on the balance sheet, and, of course, we cannot
    securitize them either because we have not passed a
    securitization law, so it will diminish certain kinds of
    mortgages. It will particularly diminish mortgages for lower-
    income people because the cost of all this is actually much
    higher on a $150,000 mortgage than on a jumbo, $2 million
    mortgage. And I can go down the line--CDFIs, financial
    companies, farmers.
        And we have already mentioned the extreme effect on market
    making, which is just a critical function to help finance
    companies around the world and help people manage money, for
    retirees and veterans and State pension plans, to manage their
    money. And in that one it is hard to figure out the full extent
    of that. I think it actually may cause issues in the
    marketplace.
        Senator Hagerty. All of these knock-on effects, I think are
    very negative.
        Ms. Fraser, not limited to your bank, in particular, but if
    you could comment on how this impacts U.S. banking systems'
    competitiveness on an international basis.
        Ms. Fraser. This diminishes the U.S. banks' competitiveness
    on an international basis. I think as we have all reflected,
    the U.S. financial system is the envy of the world. The U.S.
    banks play an incredibly important role supporting
    multinationals and supporting the Western financial system and
    its operations. It is a strategic asset of the U.S.
        Senator Hagerty. Indeed. Indeed. And I think it is
    incredible in its competitive advantage. Yet the regulators
    that are focusing on Basel III 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 U.S.
    banking capital is somehow below that of our European
    competitors. And if that were the case, this might allow
    regulators to prevent, quote, ``a race to the bottom.''
        But this is not the case. I want to quote from Chairman
    Powell. Chairman Powell says, quote, ``The proposal exceeds
    what is required by the Basel agreement, and it exceeds what
    has been done by implementation by the jurisdictions.''
        So, Mr. Solomon, I would 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. And would
    you mind to just comment on how this proposal, if it were
    enacted, would compare us to other jurisdictions. You are
    dealing around the world, but how it would make our
    competitiveness be affected in capital markets, specifically,
    versus other Nations.
        Mr. Solomon. Thank you for the question, Senator. You know,
    as you stated, the capital requirements in the Basel III
    normalization in the U.K., in Europe, in Japan, and in other
    jurisdictions are meaningfully less significant than what is
    being proposed here. And so if you look at activities that we
    compete in around the world, particularly in market making, and
    those types of activities, the U.S. capital markets are the
    strongest capital markets in the world. I think it is one of
    our big competitive advantages that everyone comes from all
    over the world into our capital markets. You think about IPO
    activity and debt capital raising. It is done to a great
    proportion for international capital in our capital markets on
    a relative basis.
        And this would just shift that balance. It would push more
    activity to other jurisdictions. It would make banks in other
    jurisdictions more competitive, and I do not think that
    strengthens the U.S. position, over time.
        Senator Hagerty. And then, conversely, the American banking
    system less competitive as well.
        Thank you very much, Mr. Chairman.
        Chair Brown. Senator Cortez Masto, of Nevada, is
    recognized.
        Senator Cortez Masto. 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. 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.
    And as we all know, the Federal Home Loan Banks enjoy Federal
    benefits that really no other bank has access to, in exchange
    for supporting affordable housing and community development
    across the homelessness.
        Last month, the Federal Housing Finance Agency published
    two reports--I called for them--exploring whether the Federal
    Home Loan Banks' hundreds of billions of taxpayer-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
    percent of their net income to affordable housing. I, again,
    believe that is too low.
        And my question to all of you is do you think the Federal
    Home Loan Banks should provide 20 percent or more of their net
    revenue for affordable housing or economic development? And
    really, does anyone not support greater affordable housing
    investments by the Federal Home Loan Banks?
        [No response.]
        Senator Cortez Masto. So let me ask you this. For the
    record, nobody has said they do not think there should be more
    investments. So you think there should. Is 20 percent enough.
    Is 20 percent more? What more should we be looking at?
        Mr. Dimon. Probably 20 percent would be fine.
        Senator Cortez Masto. Does everyone agree with that, 20
    percent would be fine?
        [No response.]
        Senator Cortez Masto. Does anybody not agree with that?
        [No response.]
        Senator Cortez Masto. Good. All right. Good start. And I am
    trying to do this so you do not have to raise your hands. I do
    not like that either. I think that is kind of ridiculous.
        Let me say this. The Federal Housing Finance Agency is
    proposing to adjust dividends and advance rates to better
    reflect the bank's 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, or concerns?
        So it is a good start, from what I see the nods of all of
    your heads. Great.
        Senator Cortez Masto. Next question. FHFA has recommended
    that 10 percent of all institutions' assets be held in housing
    assets. Ninety-six percent 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?
        [No response.]
        Senator Cortez Masto. Questions? Thoughts? Ever thought
    about it? Still need to think about it?
        Mr. Moynihan. Many of us meet that test today, but I think,
    Senator, that the trick is, going to Mr. Dimon's last point, is
    if some of these rules change we will have to shrink our
    mortgages on balance sheet, which would make us less eligible
    and less able to live up to the principles you are doing, which
    is how much housing can we help drive. And so I think with
    everything balanced, a lot of meet that test today because of
    our business constitution.
        Senator Cortez Masto. So the concern is the changes in the
    rules might have a negative impact on what we are trying to
    achieve here, at the end of the day. Is that what I am hearing?
        Mr. Moynihan. Mortgage loans are tricky to hold, and if you
    make them more capital intensive they are going to be less
    profitable, and if we are going to hold less of them--already
    80 percent of the activity goes on outside the financial
    institutions today. So I think these rules may frustrate your
    intentions of what you are trying to do with the Federal Home
    Loan Banks. And so we have applied that, we think more
    affordable housing, but you might be frustrated on the other
    side. So I think that is the kind of thing we worry about.
        Senator Cortez Masto. Helpful. Thank you.
        I want to jump to one other item around affordable housing.
    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. One
    of those is really looking at land trust, Federal land trusts.
    And the challenge they are having is they are not able to get
    any of the banks to write the loans or the mortgages for these
    land trust.
        And here is what I know. For decades--and this is what I
    want to talk to you about--for decades banks have invested in
    apartment buildings that are a deed restricted to require
    affordable rents, but in Clark County, so far, not a single
    bank has been willing to meet Clark County to discuss providing
    mortgages for deed-restricted, standalone homes on Federal
    land. The key here is the Federal land.
        I have worked hard to make sure more Federal land is
    available for housing. It is frustrating to see that,
    unfortunately, the banks refused to offer mortgages to new
    homes on Federal land. 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 is the
    top 30 largest metro area in the country. The county has a AA+
    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 cannot get a bank to
    come work with us on these land trusts?
        Mr. Dimon. I would love to get a team working the details
    of that, because I do not understand why that would be true
    unless there are legal things about collateral ownership or
    something.
        Senator Cortez Masto. Thank you. Thank you, Mr. Dimon. I
    appreciate. I know my time is up.
        Chair Brown. Thank you, Senator Cortez Masto.
        Senator Vance, of Ohio, is recognized.
        Senator Vance. Thank you, Mr. Chair, and thanks to the CEOs
    for being here. I know a few of you personally. I admire all of
    you. But one of the things that I have expressed in private,
    and also in public, is my concern that the American political
    system is infecting the American financial system, and frankly,
    the American financial system is infecting 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 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
    matter of public policy. Senator Cortez Masto and I disagree.
    But the difference between Senator Cortez Masto and I, and all
    of you, is the people of our States elected us to do public
    policy. Nobody elected you. And so my counsel 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 interests, because if you do not it is going to be a
    lot harder for us to see you guys as neutral arbiters and
    neutral actors in the American financial system. It is going to
    be much easier for us to see you as political actors.
        And 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 stat4ements 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 New York
    for a more stringent law, but you jumped into a culture war
    over Georgia. I cannot possibly understand why.
        Something that is more concerning to me, because it affects
    my constituents in the State of Ohio, is a lot of your
    approaches on energy policy. We have seen, over the last 18
    months, the consequences of reducing American energy
    independence. It empowers very bad people all over the world.
    It also impoverishes and immiserates some of my constituents
    and destroys their job.
        I am not picking on you, Mr. Moynihan, but I think you are
    the only bank that has a red X on every single issue. This is
    true of most of you. But I am going to ask you this question
    about energy policy. In 2015, Bank of America committed to
    cutoff lending by 2025, which is just a couple of years from
    now, to companies earning 25 percent 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?
        Mr. Moynihan. Senator Vance, just to be specific, that was
    a statement about mountaintop removal policy. I grew up in
    southern Ohio where there was, it was called strip mining back
    then. 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, in
    the Appalachian Mountains, and turn them into mines. And that
    was based on our assessment of the risk at the time.
        Senator Vance. So you guys have taken a number of other
    energy policy decisions that raise the cost of energy on
    American consumers. You guys have committed to a net-zero
    standard by which effectively there are no net-zero carbon
    emissions, and you have held your clients to that standard,
    saying that they need to become aligned with net-zero, and we
    plan to be the advisor of choice to our clients in this
    transition. So it is not just that particular decision, Mr.
    Moynihan, and again, it is not just Bank of America.
        My point here 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 to 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 culture
    war battles it makes it harder for the American people to see
    you guys as neutral financial institutions, and it frankly
    makes it harder for us to do the same.
        So I will leave you with just this thought. You have heard
    some very good line of questioning on Basel III. I agree with
    Senator Hagerty about Basel III. I do not know what some of the
    regulators are talking about doing. I do not think it makes a
    whole lot of sense. Often bank CEOs and other financial
    institutions will come to Republicans for more reasonable
    regulations, for lower regulations, for lower taxes, to fight
    back against things like Basel III.
        I guess my point is if you guys are going to use the
    financial power that you have 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 am one
    Republican who wants to have a good relationship with you, but
    the more you guys insert yourselves into these fights the less
    good that relationship will be.
        Thank you all for being here.
        Chair Brown. Thank you, Senator Vance.
        Senator Van Hollen, of Maryland, is recognized.
        Senator Van Hollen. Thank you, Mr. Chairman, and thank all
    of you for being here today. As many of you know, I am a big
    fan of CDFIs and MDIs as vehicles for getting capital into
    lower-income areas, to small businesses in places like
    Baltimore. Baltimore really needs that ecosystem of CDFIs and
    MDIs. And as interest rates go up, of course, the cost of
    borrowing goes up for everybody, but often it is these entities
    that are hardest hit.
        I know all of you are involved in one way or another with
    CDFIs and MDIs. I know Mr. Moynihan and Mr. Scharf, your banks,
    your institutions have a significant presence in Baltimore.
    Could you just speak briefly to what your commitment is, going
    forward, and whether the higher interest rate environment is
    negatively impacting your determination to provide support for
    CDFIs and MDIs.
        Mr. Scharf. Senator, I will start. You know, I would say
    our commitment to working with CDFIs goes through all the
    cycles, and it is not going to be impacted by the rate
    environment that we see. We share your perspective that the
    CDFIs perform a service and reach a series of individuals in
    these markets that banks would not normally be able to access,
    you know, whether it is the investments that we make directly
    in them. We have talked about what we have done with our PPP
    money, where a lot of it was given through CDFIs, specifically
    because they have the ability to access, again, customers that
    are not comfortable doing business with banks. And so those
    partnership and those commitments will continue.
        Senator Van Hollen. Thank you.
        Mr. Moynihan. Senator, we have $2 billion invested in CDFIs
    around the country, and that has increased from about $1.5
    billion 5 or 6 years ago, up to $2 billion. And they are very
    interesting in the way they can help us, including, most
    recently, a lot of participate in the Veterans Loan Fund, where
    the CDFIs can work with veterans to start businesses. That is
    not unique to Bank of America. Many of us participate in it. We
    think they can reach parts of the economy with counseling and
    other things that are critical to the start of a small. Not
    that we do not do a good job. We have $40 billion in small
    business loans outstanding, and that grew 10 percent year over
    year. It is not that we all do not do a good job in that. It is
    just that they reach it.
        So our commitment has been there for many, many, many
    years, probably since they started. I just do not remember the
    history. And it will remain solid through any environment.
        Senator Van Hollen. I appreciate that, and, you know, I
    have worked with the Chairman and Senator Warner and others. I
    chair the Appropriations Subcommittee that funds the Small
    Business Administration, and the Treasury when it comes to
    CDFIs. So I look forward to really pushing hard on this as a
    vehicle going forward.
        We have had many conversations over the years about late
    fees. Obviously, late fees and overdraft fees have a
    disproportionate impact on people living paycheck to paycheck.
    Aaron Klein, over at Brookings, estimated that if the United
    States had adopted a real-time payment system in 2007, when the
    Bank of England did, American consumers, and especially the
    folks at the lower income end, would have saved $100 billion.
    And so I have been very focused on pushing the Fed to adopt the
    FedNow program. We have the clearinghouse system out there as
    well.
        I do just want to get a brief sense of where were on this.
    As I understand, Mr. Vince, Mr. Scharf, and Mr. Dimon, your
    institutions have enrolled in FedNow. Am I right about that?
    Any qualifications?
        Mr. Vince. That is right, Senator.
        Senator Van Hollen. OK. And I know, Ms. Fraser, you and I
    had a conversation about this just a few days ago. I understand
    you are working through some technical issues. Is that correct?
        Ms. Fraser. Yes. We will be joining the system.
        Senator Van Hollen. All right. And Mr. Moynihan, if you
    could give us an update on where you are, American Express.
        Mr. Moynihan. It is Bank of America.
        Senator Van Hollen. Bank of America. Sorry.
        Mr. Moynihan. American Express is not here, but if you want
    them to come next time that would be fine with us.
        [Laughter.]
        Senator Van Hollen. Bank of America.
        Mr. Moynihan. We are in the process of doing the technical
    work, as Jane said, and so it is just a matter of time. It is a
    matter of when, not if, and it is just going through the
    systems and planning now.
        Senator Van Hollen. The more that you can do to push and
    get all your, you know, coordinate this system, the better.
        My last question does not relate to banking specifically
    but it does to an issue that the Chairman and I have worked
    over years, with respect to trying to close a tax loophole on
    carried interest. I know that you are not all directly
    involved, but you are all involved in the finance system, you
    understand the workings of this.
        Mr. Dimon, if I could just ask you, do you agree that we
    should close the carried interest loophole once and for all?
        Mr. Dimon. Yes. I always have. I have been public about it.
        Senator Van Hollen. I appreciate that. I would hope that we
    would do that because it is just egregious that it has gone on
    for so long.
        Thank you. Thank you, Mr. Chairman.
        Chair Brown. Thank you, Senator Van Hollen.
        Senator Britt, of Alabama, is recognized.
        Senator Britt. Thank you, Mr. Chairman. It is a pleasure to
    be with all of you today. Thank you so much for carving out
    time for this.
        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 sat before this very committee last month
    and unanimously told me that they believed the U.S. banking
    system to be strong, while at the same time they argued for
    proposals that could fundamentally weaken it, without providing
    any adequate answer to the question, why.
        You have seen actions, and we have seen them here, from the
    Federal Reserve, the FDIC, the OCC, the CFPB, the SEC, many of
    which seem to go far beyond the balance 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 rulemakings.
        For example, focusing on Basel III proposal, in this
    Committee just a few weeks ago, Vice Chair Barr said the rule
    will have a, quote, ``minimal impact on lending that banks
    do,'' end quote.
        Now I would like to say, Mr. Scharf, most, I heard you
    earlier when I was watching, say that 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?
        Mr. Scharf. Well, Senator, we are going to be commenting to
    the Federal Reserve. We do think there are a series of asset
    classes when you look at the increases in capital that are
    proposed, would affect both the availability of credit and the
    pricing of credit in the marketplace. And additionally, as we
    have seen in other asset classes, when regulation like this has
    taken hold, you can see substantial migration outside of the
    regulated banking system.
        Senator Britt. Thank you. At the end of the day the GSIBs
    play a vital role in the U.S. economy, and I do not 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 short-term
    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 percent the proposal would ultimately limit access to
    capital across the board and undermine economic growth.
        Mr. Moynihan, can you briefly explain this trickle-down
    effect, and if your banks are squeezed by the requirements of
    this rule what does this ultimately mean for maybe small
    business owners seeking a loan, a first-time homebuyer, or a
    small financial institution in, let's say, Alabama?
        Mr. Moynihan. Thank you, Senator. As Mr. Scharf said, and
    we talked about a lot today, if you have the same capital
    requirements increased by 20 percent to do the exact same
    activities you did yesterday, you have to get a higher return,
    and that higher return will be borne by the customer base, or
    you will have to leave the business, and either one of those is
    not good for the customer base. And it applies across the
    board.
        In fact, the idea that this does not trickle down through
    the banking system overall, we provide service to a lot of
    those smaller banks. Those costs of the services will go up to
    them. And yes, so it has much more of an impact than people
    think.
        Senator Britt. Right, and just quickly--I know I am running
    out of time--I would love an answer from all of you. Would it
    be an inaccurate statement for regulators to assume that under
    this threshold, you know, those under the $100 billion asset
    mark, they have said they will not feel the impacts of this. So
    my question for you is, will those institutions, and people and
    things that I just mentioned, under the $100 billion mark that
    are, quote, ``not affected by this,'' will they feel the
    impacts of Basel III? Just if we can yes or no down the line.
        Mr. Scharf, we will start with you.
        Mr. Scharf. Ultimately, yes.
        Mr. Moynihan. Ultimately, yes.
        Mr. Dimon. Absolutely. We provide a lot of services.
        Ms. Fraser. Yes. The trickle-down effect is real.
        Mr. O'Hanley. Yes. It is an integrated system.
        Mr. Vince. Yes, Senator. That is likely.
        Mr. Solomon. Yes, I agree.
        Mr. Gorman. Yes.
        Senator Britt. 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? Ms.
    Fraser, do you mind answering that?
        Ms. Fraser. Yes, we will. We already have an unlevel
    playing field with the European banks. The American banks play
    an incredibly important role globally in the financial system,
    and ultimately affect the competitiveness of American
    companies. This is important.
        Chair Brown. Thank you, Senator Britt.
        Senator Warren, of Massachusetts, is recognized.
        Senator Warren. 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, 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. Moynihan, 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?
        Mr. Moynihan. Yes, we do, Senator.
        Senator Warren. OK. Mr. Dimon, you are the CEO of JPMorgan.
    What about you? If a terrorist group tried to move money
    through JPMorgan accounts do you have systems in place to catch
    it, to report it, and to shut it down?
        Mr. Dimon. We have extensive systems in place, but no
    system is foolproof.
        Senator Warren. OK. But you do have systems in place.
        Mr. Dimon. Yes.
        Senator Warren. You 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 of 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 do not run a financial system that
    is open to terrorist 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 cutoff future
    access, and that is what Congress did.
        Today's terrorists have a new way to get around the Bank
    Secrecy Act--cryptocurrency. Last year, an estimated $20
    billion in illicit 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. Dimon, you have been CEO of JPMorgan for almost two
    decades. Can you explain why crypto is such an attractive
    financial tool for terrorists, drug traffickers, and rogue
    Nations?
        Mr. Dimon. I have always been deeply opposed to crypto,
    Bitcoin, et cetera. You pointed out the only true use case for
    it is criminals, drug traffickers, anti-money laundering, tax
    avoidance, and that is a use case, because it is somewhat
    anonymous, not fully, and because you can move money
    instantaneously, and because it does not go through, as you
    mentioned, all these systems built up over many years--Know
    Your Customer, sanctions, OFAC. They can bypass all of that. If
    I was the Government I would close it down.
        Senator Warren. OK. Well, that is what we are going to talk
    about. But this last week, Federal 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 laws clearly need to be updated, but crypto lobbyists
    are working overtime to block any legislation. They claim
    crypto is special, and it should not 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 would like to go down the line here. Maybe I can start
    with you, Mr. Scharf. Do you think that crypto companies
    facilitating financial transactions should have to follow the
    same anti-money laundering rules that your bank has to follow?
        Mr. Scharf. Absolutely, Senator.
        Senator Warren. OK. I like absolutely. Let's go on down the
    line. Mr. Moynihan.
        Mr. Moynihan. Absolutely.
        Senator Warren. All right.
        Mr. Dimon. Absolutely. Positively. Certainly.
        Ms. Fraser. Unanimous absolutely.
        Mr. O'Hanley. Absolutely.
        Mr. Vince. Absolutely.
        Mr. Solomon. Absolutely.
        Mr. Gorman. Absolutely.
        Senator Warren. All right. It is the word of the day.
        You know, we have got a way to do this. Senator Marshall
    and I, along with 18 of our Senate colleagues, including
    Senator Cortez Masto, Senator Smith, Senator Fetterman, Senator
    Warnock, 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 terrorists attacks or North Korea's nuclear
    program.
        When it comes to banking policy I am not usually holding
    hands with the CEOs of multibillion-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 is time for Congress to act.
        Thank you, Mr. Chairman.
        Chair Brown. Thank you, Senator Warren.
        Senator Daines, of Montana, is recognized.
        Senator Daines. Chairman, thank you, and thanks to all of
    our panelists for being here today.
        Earlier this year we saw a series of bank failures which
    were among the largest in our Nation's 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
    responsible 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 regulator I have questioned this year,
    hearings like this, has confirmed that we all know to be true,
    and that is the U.S. banking system is strong, it is well
    capitalized.
        The proposals put forth by Vice Chair Barr and other
    regulators will limit economic growth, reduce lending to small
    businesses, and for those who are able to obtain financing,
    they are going to see increased costs. You know, I have
    frequent meetings with my businesses across Montana. We are a
    State noted for small businesses. 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 questioned Vice Chair Barr before this very Committee
    about risk weighting and public listing requirements in the
    Basel III Endgame proposal. Astonishingly, he claimed that
    small businesses would be better off under the proposed scheme
    than they are now, despite the fact that less than one-tenth of
    1 percent of businesses are publicly listed and would qualify
    for the lower risk weighting.
        Mr. Dimon, could you speak to how the Basel III Endgame
    proposal would impact your ability to lend critical funds to
    small businesses and what trickle-down effects we might expect
    if this were to be implemented?
        Mr. Dimon. Yeah, so thank you for the question, Senator.
    First off, these questions should not wait for the NPR coming
    out. They should have been answered way before because it is
    very complex, the work should have been done, the details
    should have been shared. Directly, it makes those loans--we
    would have to charge more, and have a lot of unintended
    consequences.
        As you know, we opened in Bozeman and Billings, but we have
    to charge more locally just to make sure we get our return and
    cost of capital. Secondarily, the operational risk capital, we
    increased the cost of simply holding a small business checking
    account or making a loan. And so all of these things are a
    cumulative effect.
        It will also affect our ability to finance your local
    community banks, which we often do, your local affordable
    housing, or the Montana Pension Plan. So all these things will
    trickle through, they will all become a little bit more
    expensive, and there will be some other unintended
    consequences. One of the things is moving out of banking, but
    also how we deal with customers. So I think some people will be
    surprised, some people may drop a few customers, and it also
    may lead to more concentration in certain ways because you are
    going to have to get more revenues from a client to justify the
    loan.
        Senator Daines. Mr. Dimon, thank you. Mr. Scharf, do you
    have any comments or thoughts on that, as well?
        Mr. Scharf. I agree with what Mr. Dimon said.
        Senator Daines. Thank you. I want to shift into the issue
    of oil and gas investment. In this last year and a half since
    Russia's invasion of Ukraine, February 27th, I have had the
    opportunity to travel extensively throughout Europe, where I
    have met with leaders in virtually all the countries that
    border Ukraine, particularly on the west side. I have been in
    the Baltics, also in the Balkans, as well as Ukraine border
    countries.
        One thing I have heard that is nearly universal is that
    they have let the whims of the day dictate their energy policy
    and moved too quickly away from reliable, baseload forms of
    energy, like natural gas, coal, hydropower, and nuclear. I was
    struck when I was in Vilnius. They took me out to their LNG
    facility. By the way, in that regassification, you know, these
    floating ships, which are parked there, it is fittingly called
    the ``Independence,'' as this LNG has really been key, that is
    coming often from the United States to get Europe back on its
    feet, to a certain extent, as it relates to energy.
        But I asked these folks who were running the LNG plant,
    ``What did you do before you were making LNG?'' And I had a
    background in chemical engineering. I was always kind of
    curious about process and who these people are. They said, ``We
    used to run a nuclear plant in Lithuania.'' ``So what do you
    mean, you used to run it?'' They said, ``We used to supply 70
    percent of Lithuania's electricity through a nuclear plant, but
    in 2009, it was shut down.'' I said, ``Why was it shut down?''
    They said as a condition of joining the EU they made them shut
    it down, and Lithuania went from being a net energy exporter to
    an energy importer.
        And this is just a warning thing for all of us. You cannot
    let the whim of the moment, some particular segment of a green
    movement, which at that time was very anti-nuclear, and to
    their credit it was an old Russian-designed, Chernobyl-type
    reactor that needed to be changed over, which they were.
    Hitachi was going to build a new Japanese, state-of-the-art
    reactor. They shut the whole thing down, and they are paying a
    severe price for it.
        The need for fossil fuels is not going to dissipate in the
    near term. I am very concerned the Biden administration has an
    all-out assault on the oil and gas industry in the United
    States to further their green fantasy and hallucination. We can
    do this in the safest and in the most environmentally sound way
    to have a balanced energy portfolio that 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 is going to need 50 percent more energy than it
    does today in the next 25 years.
        Mr. Dimon, can you discuss----
        Chair Brown. Very briefly, 30 seconds if you can, Mr.
    Dimon.
        Senator Daines. Mr. Dimon, here is my question. Can you
    discuss the importance of having some common sense as it
    relates to capital requirements, lending, and so forth in the
    oil and gas industry?
        Mr. Dimon. We have to finance transition. You need secure,
    safe, affordable oil and gas to do that. The oil companies are
    doing a great job reducing CO2. If you do not have affordable,
    cheaper energy, the costs on poor people, poor Nations will be
    dramatic. We can get it done right as long as we are very
    thoughtful about it.
        Chair Brown. Senator Smith is recognized, from Minnesota.
        Senator Smith. Thank you, Mr. Chair, and good morning to
    all of you, or I guess it is good afternoon. Glad to have you
    all with us.
        I would like to start with you, Mr. Scharf. So I want to
    talk to you about the Community Reinvestment Act. 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,
    am encouraged by the new CRA rulemaking, 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 clear direction on what activities
    qualify for CRA credit.
        So Mr. Scharf, could you tell me how you assess this final
    rulemaking for the CRA, and od you think that these changes
    will better enable banks to meet their CRA obligations?
        Mr. Scharf. Senator, I very much agree with your sentiment
    of both the importance of CRA and the need to make changes in
    existing CRA legislation to ensure that the ultimate goals are
    actually achieved through the actual legislation. I think when
    you look at the changes that have been made there are certainly
    many items that are taken into account which are directionally
    supportive of what I just said. We have given some comments to
    the regulators about some of the specifics that we would like
    them to just reconsider as they work toward that goal, but
    directionally rethinking CRA and doing it in a way that all the
    regulators come together is extremely helpful.
        Senator Smith. Thank you. I agree with that. I think having
    everybody being on the same page was an extremely important
    part of this as well.
        Another thing that I think is true is that these updates to
    the CRA 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? I am not talking
    about changing rules all the time, but I am saying learning
    from our experience and your experience to make sure they are
    working well.
        Mr. Scharf. I mean, Senator, yes. It absolutely makes sense
    to relook at these things and make sure that they are having
    the intended consequences, and 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 striking that right balance is also, I
    think, very important.
        Senator Smith. Great. Thank you.
        Mr. Solomon, good afternoon. It is good to see you. Many of
    us are giving thought to how AI, artificial intelligence, is
    being deployed, and how we should be setting guardrails for its
    use, and understanding that AI has been in use for many years.
    I think it is true that generative AI has gotten a lot of
    attention over this last year, both for its capacity and also
    for the limitations that have been on full view.
        Earlier this year, Mr. Chair, the Bing 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, as the leader of Goldman Sachs, is
    how do you see using this? I know that you probably have been
    using AI tools for quite a long time, but could you talk a
    little bit about how the generative AI projects that you are
    working on, how you see these being deployed internally and how
    you are thinking about the appropriate guardrails.
        Mr. Solomon. Thank you for the question, Senator. Obviously
    it is something we are 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 have been using artificial intelligence in our business
    for quite some times, but these large language models
    accelerate your ability to use 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 the negative, 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
    guardrails. And so we have an enormous amount of focus in
    thinking through how these tools can be used to attack our
    systems, our platforms, et cetera.
        I think 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 cannot see, and we have got to make sure we have the right
    protections in place.
        Senator Smith. Thank you. Ms. Fraser, I just have a couple
    of seconds left. You and I spoke about this a little bit
    recently. Tell me how you think about this, from Citi's
    perspective.
        Ms. Fraser. About 4 years ago we put some principles in
    place for how to use AI, topics such as fairness and
    transparency and how it is used, making sure that you can
    understand and trace the different algorithms that are in
    place, elements like that, and making sure there are human
    beings governing this, and making sure the protections are
    there so we get the opportunities realized from it and also use
    it to defend against the threats.
        Senator Smith. Thank you.
        Chair Brown. Thank you, Senator Smith.
        Senator Fetterman, from Pennsylvania, is recognized.
        Senator Fetterman. Thank you, Mr. Chairman. Thank you.
        All right, Mr. Moynihan, back in 2008, the Bank of America,
    your bank, did not have enough capital to cushion the bad
    investment decisions that you made, and you had to be bailed
    out. And in 2023, of this year, Silicon Valley Bank did not
    maintain enough capital and had to cost over $20 billion from
    the FDIC.
        So let me ask you, should we believe you that you have the
    Batman, we have got this kind of an issue, or should we be able
    to have to have intervention to adjust this?
        Mr. Moynihan. Senator, I think since the financial crisis
    this body, along with Congress and the President passed the
    Dodd-Frank Act, which changed the capital rules. There was
    adoption of further Basel standards. On top of that there has
    been 13 stress tests, if I have got it right, each one of those
    more severe. So even in the last 5 years we probably have 10,
    15 percent more capital required under those tests. So I think
    there has been a significant amount of regime change made.
        The question for the institutions that failed earlier this
    year is that none of them are captured with that scrutiny, and
    our view was, as a group that had to go in and do two things,
    one, try to keep them alive long enough so it could be
    resolved, and second, this week, we cut a check at $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. Our view is that these capital
    rules are not really going to address that, and many capital
    rules apply to these institutions, and the 30 stress test banks
    which do apply to that. And that is why you saw us be a source
    of strength earlier this year.
        Senator Fetterman. Yeah. Well, if you felt that we all
    supported those kinds of changes after the crash, and then how
    can we have, you know, what happened at the Silicon Valley
    Bank, now some 15 years later, and if there was not the kind of
    intervention it would have caused another kind of a crash. So
    have we got it right yet? Should we have to make any more
    changes? Are you OK with this idea that a relatively small
    bank, especially compared to the size of all of you in front of
    us today, could cause a crash, system-wide, unless the
    President had to quickly intervene and make sure that we
    address this? Any changes, anything else, or that it is OK to
    worry that a small bank could actually imperil our entire
    financial system?
        Mr. Moynihan. I think 4,000 banks have failed over the
    course of time. That is what the FDIC was created to help. And
    they have been resolved, as a----
        Senator Fetterman. But have any of them almost crashed our
    entire economy, or the financial system?
        Mr. Moynihan. In '07-'08, the system was outside the
    system, in addition to that, so many of the people up here were
    not bank holding companies at that time. And that was the
    invention of the broader purview of the banking regulatory net.
    The invention of the FSOC we have talked about. The invention
    of stress testing. The invention of all of these things, and
    Basel rules to measure, to move to an advanced methodology
    using models and other things to measure risk as opposed to
    standardized methodologies, which is what we are going back to
    now. All that was made to change the system.
        Silicon Valley did not threaten the U.S. economy. It could
    have been resolved, and it was resolved.
        Senator Fetterman. Why did the President act so swiftly if
    there was not such a concern? You know, that is amazing that
    you can get on the phone and act so quickly for that kind of
    money, like if it really was not such a significant risk. I
    mean, I wasn't read about the other 4,000 banks that crashed
    that required the President to react in such a swift manner.
        Mr. Moynihan. You would have to ask the people. We did not
    think that all that could have been resolved differently, many
    of us that got involved with the First Republic transaction,
    the deposits we put in. But you are going to have to ask the
    other people why they did what they did. It is not us.
        Senator Fetterman. OK. But again, so no changes are
    necessary, despite now that we seem to have this enduring kind
    of a risk that bad behavior or bad investments could actually
    crash, you know, our whole financial systems.
        Mr. Dimon. There were specific things that happened in
    Silicon Valley Bank that should be addressed by regulations,
    and the most important one is excessive interest rate risk.
    That has got nothing to do with Basel III, the issue here.
        And I think the American public should know that banks pay
    for the FDIC. That is 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.
        Senator Fetterman. With all due respect, Mr. Dimon, and do
    not think it really matters who is paying for it. But the fact
    that anyone has to pay because of these choices are necessary.
        Now my Chairman--and actually, Mr. Dimon, was next on my
    questioning.
        Chair Brown. Quickly.
        Senator Fetterman. Outstanding. So Mr. Dimon, you claim
    that the capital requirement, that will increase costs and
    reduce lending. Chase has done $5.5 billion in share buybacks,
    and $9 billion in dividends so far this year. So would it not
    be easier just to kind of 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?
        Mr. Dimon. It is the shareholders' money, and we do all the
    proper lending we can and should do. It will reduce the
    profitability to a banker doing the business, and I do not
    think you should be asking people to do stuff that is
    unprofitable for their shareholders. That is more like a
    charity. There is tons of that. I am happy to talk about that
    in more detail.
        Chair Brown. Thank you, Senator Fetterman. The Committee
    will take under advisement Mr. Dimon's proposal to take over
    the FDIC.
        [Laughter.]
        Senator Fetterman. Yeah, I would love to buy it if there
    was more time, because I would like to have you explain why
    Democrats should support Nikki Haley for President, but I do
    not have the time.
        Chair Brown. Thank you, Mr. Fetterman. And while I like
    your ideas on SSI, Mr. Dimon, I need to think more about FDIC.
        Senator Warnock, from Georgia, is recognized.
        Senator Warnock. Thank you so very much, Mr. Chair. Before
    I get to the question that I set out to ask I have to respond
    to the Senator from Ohio, not the Chair, who apparently takes
    great umbrage to the words or the letters sent by the leaders
    of these institutions responding to the voter suppression bill
    that was passed in Georgia.
        I know a little something about voter suppression in
    Georgia. Today is, in fact, the 1-year anniversary of my
    election in Georgia. But my election should not give people the
    false impression that there is no voter suppression in Georgia.
    It should not give us any misunderstanding about how bad a law
    S.B. 202 actually is.
        In fact, I had to sue the State of Georgia because at the
    beginning of my runoff a year ago they decided that folks would
    not be able to vote the first Saturday of the runoff, claiming
    that this was the clear letter of the law. You could not vote a
    couple of days after a holiday, that holiday being
    Thanksgiving, and a day they used to honor the anniversary of
    confederate General Robert E. Lee. And so I had to sue them,
    and then appeal again and again, just so Georgia voters could
    vote.
        So I think that people in your position do have a corporate
    responsibility, and I hope you will certainly feel the freedom
    to lean in, in the places and the spaces where it is necessary.
        And in that vein I want to ask you about the SAFER Banking
    Act, legislation recently considered by this
        Committee on 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 am going to ask you to raise your hand if you support the
    SAFER Banking Act.
        [No response.]
        Senator Warnock. None of you support the SAFER Banking Act.
        I am going to ask you a question. Raise your hand if you
    support the SAFER Banking Act.
        [No response.]
        Mr. Moynihan. Senator, we all support the intent of it. The
    problem is it does not fix the problem. So do not take our non-
    assents as----
        Senator Warnock. Let me ask my next question. Raise your
    hand if you believe passing the SAFER Banking Act will reduce
    the racial wealth gap.
        [No response.]
        Senator Warnock. So, this is interesting. 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 have been hollowed
    out. 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 building. The war on drugs has been a war on
    communities of color.
        I want to be clear that I am open to SAFER Banking and more
    regulatory clarity around cannabis, but my fear is that if 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 to say whether you support it
    or not. I am concerned about equity and whether we will get
    that in the process.
        So let me ask you this. Will each of you commit to ensuring
    your banks will uphold the standards, standards in the
    Community Reinvestment Act, that is, which we will soon have
    another opportunity to address, will you support standards to
    increase equity as we move forward, perhaps, on SAFER Banking.
    Mr. Scharf.
        Mr. Scharf. Yes, Senator.
        Senator Warnock. Mr. Moynihan.
        Mr. Moynihan. Yes, sir.
        Senator Warnock. Mr. Dimon.
        Mr. Dimon. We support the intent, but I would have to see
    the actual words and the actual law.
        Senator Warnock. Would you support efforts to be
    intentional about supporting equity and addressing the awful
    impact of 40 years of the war on drugs, which in many ways has
    been a war on Black and Brown communities?
        Mr. Dimon. Yes, but before I agree to something I like to
    see the actual detail, down to the last word.
        Senator Warnock. Ms. Fraser.
        Ms. Fraser. Similar to Mr. Dimon, I absolutely support the
    intent. The details matter. We would look at it and work with
    your office if we had concerns.
        Senator Warnock. Mr. O'Hanley.
        Mr. O'Hanley. We support the intent.
        Senator Warnock. Mr. Vince.
        Mr. Vince. Similar to my colleagues, we would want to see
    the details.
        Senator Warnock. Mr. Solomon.
        Mr. Solomon. I would want to understand the detail more. We
    will continue to do things to support investment in underserved
    communities.
        Senator Warnock. Mr. Gorman.
        Mr. Gorman. Exactly the same.
        Senator Warnock. Thank you so very much. I think this is
    critical. There is nothing in history that suggests to me that
    if we leave behind these communities that are marginalized, as
    we make banking safer for powerful banks and people in
    positions who sit here and who sit there, there is nothing in
    history that suggests to me that we are 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 you will
    take an active interest in this, recognizing that it is not
    only the right thing to do for the future of our economy, it is
    the smart thing to do.
        Thank you so much.
        Chair Brown. Thank you, Senator Warnock, and thank you for
    setting the record straight on the Georgia election law.
        Senator Warnock. Thank you.
        Chair Brown. Senator Lummis.
        Senator Lummis. Thank you, Mr. Chairman. Welcome. There has
    been a lot of talk today about Basel III. We know what it means
    for your banks. I would like to explore, for a little bit, what
    it means for small community banks. Wyoming and other rural
    States rely on small community banks, and while the capital
    requirements apply to the systemically important banks, I would
    like to know if there are additional impacts on smaller
    community banks and their customers.
        So I will address the question to Mr. Dimon and then ask
    anybody else who wants to take a swing at this to weigh in as
    well.
        Mr. Dimon. Thank you, Senator. I think the smaller
    community banks would say they are 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, it will trickle down to higher costs 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.
        Senator Lummis. Would anyone else like to take a swing at
    that one? Thank you.
        Americans interact with the financial institutions through
    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 Basel III on pensions, mutual funds, insurance
    companies, and other users of derivatives who hedge? Now
    hedging, in my industry, agriculture, is very important, so I
    am interested in the implications for hedging and the other
    entities I mentioned. Perhaps Ms. Fraser, would you address
    this?
        Ms. Fraser. Yes. Hedging plays a very important role for
    protecting against risk and helping mitigate risk, particularly
    when we are in very volatile times at the moment, it is
    important for providing stability in income flows, and
    commodity hedging is a critical piece for any farmer in
    America. So the increase in capital associated with the Basel
    III 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 parts of our economy and society.
    It is not just for the most sophisticated players.
        Senator Lummis. I want anyone who is interested in
    responding to this question to take it. One of the things that
    my staff observed is that one of the most poorly thought out
    parts of Basel III 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 would like to know if you agree with my staff's concern,
    and how we might address that. And this is for anyone who
    wishes to take it. Yes, sir.
        Mr. O'Hanley. It is a very crude measure of risk and does
    not reflect the fact that some of the largest and most
    sophisticated companies in America are public. So it is just
    putting in one basket saying that, by definition, if you are
    not public. And if you look at the trends, in fact, fewer and
    fewer companies are public these days. That is a whole
    different kind of debate that we can get into some other time,
    but it is a terribly crude measure.
        Senator Lummis. Do you know why they chose to make public
    versus private companies different, and treat them different in
    terms of using them as a proxy for counterparty credit risk in
    derivatives? Anyone?
        Well, we do not know either, so we are all in the dark.
        OK, question. 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, help me understand why we have to stay competitive.
        Ms. Fraser. I speak as an immigrant to the States. America
    plays a critical role around the world in terms of supporting
    supply chains, in terms of the risk management tools it
    provides, the stability it provides to populations all over the
    world, the investment flows. We account for over 50 percent of
    all of the capital activity and investment activity in the
    world. That is a strategic asset for America, it is something
    we should be incredibly proud of, and it is something that we
    need to defend.
        Senator Lummis. Anyone else?
        Chair Brown. OK. Anybody else want to answer? Sure. I think
    when you are next to the last people are getting kind of tired.
        Senator Lummis. Thank you so much.
        Chair Brown. Thank you. Thank you to the patience of all of
    you.
        Senator Butler, the newest Member of this Committee. Sorry
    you have to sit there.
        Senator Butler. I am number 100. When you are number 100
    you stand between the panelists and lunch. So I appreciate very
    much the time that you all put in to talking with me, knowing
    that I was going to be the last person to ask you question.
        But because most of you have a significant footprint in the
    State of California, I thought it important, on behalf of the
    40 million California residents, to sit here the entire time
    and to represent their interests across this industry.
        I am glad our Ranking Member made his way back. As the
    newest Member of the Senate I am still getting to know my
    colleagues, and I wanted to Ranking Member to know that I do
    agree with him on a key point that he made in this opening
    remarks, and that is the majority of the American people who
    are watching this broadcast, particularly who are still
    watching, are not talking about, nor have any interest in Basel
    III Endgame. They are talking about fairness and fees and
    affordability. So that is where I want to land my two
    questions.
        I want to--and it is, honestly, not to pick on anyone, but
    really in the space and intention of moving things along--I
    want to pick up on Senator Smith's point around algorithms and
    algorithmic deployment. Ms. Fraser, you and I spoke about this
    as it relates to customer account closures. We talked
    specifically about the November 5th New York Times article in
    which Citi was specifically mentioned. A customer of yours who
    owned a bar, and who was making bar-like deposits, end-of-day
    cash deposits in round amounts so that they could actually keep
    petty cash on hand to be able to make change at the bar, and
    found themselves the victim of an account closure due to what
    the algorithm determined was suspicious activity.
        Can you talk more about the process that you have deployed
    across Citi to give customers confidence that when you are
    doing your due diligence, as a significant global investment
    institution, when you are doing your due diligence to provide
    and enhanced national security, how do those American people
    who are still watching, who are still listening, who will hear
    this back, how can they have confidence that their credit is
    not going to be negatively impacted, that you are going to
    return their whatever remaining balance that they may have on
    time, in a way that they can actually get their bills paid, due
    to no wrongdoing of their own?
        Ms. Fraser. Senator, thank you very much for the question.
    Thank you also for sitting through the entirety of the hearing
    today.
        You raise a really important point. I think all of us want
    to protect our customers. There is a tremendous amount of
    thought. Cyber probably keeps us awake at night. We want to do
    a good job for our customers. We want to look after them and
    enable them to live their lives and their financial lives
    securely.
        We have money laundering requirements that are very
    significant, in which we are not allowed to go and then tell
    the customer why it is we have closed their account. And I
    think all of us appreciate how frustrating that is for our
    customers, but we must follow the law. You and I have also
    talked about when it is found out that a customer's account is
    being closed in error or for some other reason, or there has
    been fraud blocks, how do we then help them recover their funds
    quickly, and that again, I think there is no bank CEO on this
    table that does not want to help a customer to do that, and we
    are very happy to follow up with you on what are different ways
    that can be achieved. Thank you.
        Senator Butler. Thank you. Thank you for extending that
    opportunity to continue to figure out ways that this body can
    act to protect not only California customers but people who are
    banking with your institutions around the country.
        My last question, Mr. Dimon, 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. In particular, your institution has done an
    incredible amount on this issue, and I want to applaud and
    recognize you for that.
        On the other hand, the other issue that I raised with you
    is just a concern of this intersection of both a declaration
    and a support for investing in affordable housing and making
    mortgages more affordable for low- and middle-income families,
    and the practice of financial institutions in buying real
    estate development purely for the purposes of putting it up for
    rent. Those two things seem to be in opposite and in contrast
    to me.
        And there is a report of JP, specifically in California,
    about this behavior, and I would love to give you the
    opportunity to talk to Californians about how you are meeting
    both of those obligations, the obligation to provide more
    affordable housing, help to create more access to the American
    Dream, and, at the same time, buying more and more single
    family residential properties where they are going to be only
    available for renting.
        Mr. Dimon. Thank you for the question.
        Chair Brown. Be brief, if you would.
        Mr. Dimon. Thank you for the question, Senator. We love
    affordable housing. We do a lot of it, as do a lot of the banks
    up here. We can make mortgages much lower cost for lower-sized
    mortgages. I have been dying to work on that for 10 years now.
        I think you are referring to an instance where we financed
    a company which is building homes, and I think it is 200 homes,
    for rental. Remember, rental is appropriate for some people.
    And so I understand your concern, and I will look into the
    specifics. But building more homes is good for affordable
    housing.
        Chair Brown. Thank you, Mr. Dimon. Senator Butler, thank
    you. Thanks to the eight of you for joining us today.
        For Senators who wish to submit questions for the hearing
    record, those questions are due 1 week from today, Wednesday,
    December 13. To the banks, please submit your responses to
    these questions for the record no more than 45 days from the
    day you receive them.
        Thank you again. The hearing is adjourned.
        [Whereupon, at 12:36 p.m., the hearing was adjourned.]
        [Prepared statements, responses to written questions, and
    additional material supplied for the record follow:]
                   PREPARED STATEMENT OF CHAIR SHERROD BROWN
        This hearing will come to order.
        The eight bank CEOs appearing before us today lead the biggest
    global, systemically important banks in the United States.
        Your banks hold nearly $15 trillion in assets, manage trillions of
    dollars of investments and retirement accounts, and fund the biggest
    companies in the country. You hold nearly half of the Nation's deposits
    and more than $80 trillion in client assets.
        Your banks touch almost every aspect of our financial system and
    working Americans' money--even if they are not your customers.
        All of that makes you eight of the most powerful people in the
    country.
        The banks you run are so large, so complex, and so interconnected,
    that their distress or failure could pose a threat to our entire global
    financial system.
        You may be private companies, but the risks you take and the
    mistakes you make don't just affect you. They don't even just affect
    your customers, or not even just your shareholders, or not even just
    your workers--mistakes you make affect the whole economy, and--as we
    all remember from 2008 and 2009--they can certainly affect American
    taxpayers.
        That amount of enormous power should also come with enormous
    responsibility.
        And a big part of that responsibility is to make sure that
    investors--not taxpayers--are on the hook when risks at your bank don't
    pay off.
        That's why we need strong capital requirements at the biggest
    banks. Because of this Committee, we finally have financial watchdogs
    in place who are getting serious about the need for these protections.
        These are commonsense rules to ensure that banks can withstand
    losses from the riskiest financial shenanigans that create no value to
    the real economy.
        These rules protect against risky trading and derivative activities
    on Wall Street--the same activities that led to the 2008 financial
    crisis. They would close a loophole that allowed banks like SVB to hide
    behind an accounting fiction that lowered capital requirements and
    contributed to its failure.
        And anyone who had any doubt about whether Wall Street could be
    trusted to use its power responsibly need only look at the current
    lobbying fight on this.
        If you've watched the local news in Washington, if you've waited at
    a bus stop in Washington, if you've flown out of Washington National
    Airport, you've probably seen ads urging people to, quote, ``Stop Basel
    Endgame.''
        The eight of you surely know your audience.
        And you haven't stopped there--you've even gone national, pouring
    money into ads for Sunday night football.
        It's a campaign waged by your lobbyists to prevent financial
    watchdogs from putting in place these stronger capital requirements to
    protect our banking system and our economy.
        Listening to these ads, you hear all kinds of claims about how
    stronger rules will raise the cost of mortgages and stop small
    businesses from getting loans.
        Wall Street banks are actually saying that cracking down on them
    will, quote, ``hurt working families.''
        Really? You're saying that cracking down on Wall Street is going to
    hurt working families? You're going to claim that?
        The economic devastation of 2008 hurt working families.
        The uncertainty and turmoil from the failure of Silicon Valley Bank
    hurt working families--when small businesses and their employees in
    Ohio and Utah and across the country didn't know if they could get
    access to their money and make payroll.
        And of course, the claims in this ad campaign aren't true.
        Your game is to try to confuse people. Most Americans probably
    think of a bank's capital--if you force people to think about it at
    all--as money stashed away in a vault.
        But that's not what it means. Capital is just a way to fund loans
    and investments and risky activities in a way that can absorb losses if
    things go south. It means shareholders and investors are on the hook--
    not taxpayers.
        And what those glossy ads don't tell you is that your banks have
    been reducing your lending to small businesses and veterans and
    homebuyers for years now--since long before the new capital requirement
    proposals.
        Remember that--these are just proposals at this point, they haven't
    even been implemented.
        Let's be clear: Absolutely nothing in these rules would stop your
    banks from making loans to working families and small businesses.
        Absolutely nothing.
        The reason banks might make fewer of these good loans in the future
    is the same reason we've been seeing less and less productive banking
    activity for years: it doesn't make your banks as much money as the
    risky stuff. You would rather fund risky trading and derivatives bets
    than boring, bread-and-butter small business lending.
        So even with this rule, you can still lend to small businesses and
    homeowners. You just might not increase your profits quarter-over-
    quarter by quite as much as you increased them last year.
        But I think most Americans would agree that's a fair trade-off for
    society:
        More small business lending. More first-time homebuyers. Less
    chance of taxpayer bank bailouts. And in exchange, maybe, smaller
    executive bonuses and a teeny tiny bit less profits for multitrillion-
    dollar Wall Street banks.
        We know the banking industry isn't giving up without a well-funded
    fight.
        Wall Street pours money into high-priced lobbyists to fight any
    effort to put the most basic guardrails on your ability to do whatever
    you want.
        And what your banks want is to maximize quarterly profits--the cost
    to everything and everyone else be damned.
        We've seen over and over what a problem that is, and the harm that
    the current system does in places like Ohio.
        Earlier this year, when I first heard about SVB's collapse, my mind
    immediately went to another crisis in my State, in East Palestine,
    Ohio.
        They have one thing in common: corporate lobbyists pushed for
    weaker rules, less oversight.
        Companies cut costs, didn't care about safety if it got in the way
    of increasing profits.
        And working people paid the price.
        This is why people hate Wall Street.
        And it's why people hate Washington--because these lobbying
    campaigns usually work.
        We see it over and over.
        We saw it during the fight to pass Dodd-Frank, after the financial
    crisis. Many of us remember the quote from an industry lobbyist after
    we passed that law--``now it's halftime.''
        This time, Wall Street was true to its word.
        The executives whose banks failed this spring had lobbied for
    watered-down rules to make it easier to chase profits at all costs.
    They knew risks were building at their banks, but they chose to ignore
    those risks because it meant a bigger pay out for executives at the
    top.
        So we should be concerned when the executives of even bigger banks
    are doing the same thing against capital requirements.
        Working Americans are tired of arrogant executives gambling with
    other people's money, then riding off into the sunset without any
    consequences.
        That's why we need to pass the bipartisan RECOUP Act, to hold
    failed bank executives accountable for driving their banks into the
    ground.
        And it's why we need strong capital rules.
        Before you protest--I know, of course, that it wasn't your banks
    that failed.
        But after those failures earlier this year, we were reminded about
    how fragile our banking system could be. And as a result, your banks
    only got even more powerful.
        So it's fair to take stock of how you're using that power.
        I appreciate the long overdue increases in wages and benefits for
    many of your frontline employees. At least one of your banks has made
    real efforts to get rid of overdraft fees.
        But your banks need to do far better when it comes to meeting your
    customers where they are and recognizing the dignity of work. You
    should be cutting prices for consumers, increasing opportunity for your
    employees, increasing diversity within your executive ranks, and
    supporting your workers' efforts to unionize.
        And you should stop pouring money into lobbying against efforts to
    protect the taxpayers who subsidize your entire industry.
        The reason for this hearing every year is to hold the biggest banks
    in this country accountable to the American people. We want to hear
    from you: What will you do to support workers, to invest in the real
    economy, and to finally put Wall Street to work for Main Street?
                                     ______

                    PREPARED STATEMENT OF SENATOR TIM SCOTT
        Thank you, Chairman, and thank you to a very long list of CEOs who
    have come to talk with us about how the impacts of our regulatory
    environment will impact everyday consumers.
        And I hope that you all, some of the things I will say will be
    redundant because some of it's unprepared based on what the Chairman
    just said, but I hope you all will really answer the question [of
    whether] nothing in these proposals will stop your banks from lending
    to small businesses or first-time homebuyers. Because if the proposals,
    Basel III Endgame--who in America knows of Basel III Endgame really
    is--let's translate that for the average American sitting at home
    watching this because they have nothing else on TV to watch.
        It is simply requiring more capital on the sidelines, which then
    means fewer dollars to lend to small businesses, first-time homebuyers,
    car loans. So the actual impact of a higher regulatory standard is
    fewer dollars to lend to Americans who need desperately to be engaged
    in the process of achieving the American Dream that is typically
    defined by having access to capital.
        If you work really hard and keep your life in order, you can have a
    good quality middle-class life. But if you want to actually experience
    wealth in America, you have to experience the benefits of profit or
    equity. Equity comes from having capital--having capital typically
    means you either have it because you are born with it or you have
    access to it because you have an idea or a vision that will make your
    community or this Nation better.
        When that happens, you go to a lending facility called a bank or
    outside of the market and you find that capital that allows you to
    start your business. And as you start your business and it appreciates
    it, it creates a profit, and that profit allows you to experience the
    upper echelon of the American Dream. If you have a home, look at the
    differences between African Americans and majority population and net
    worth--tenfold difference. Much of that difference is found in the
    profit or the equity in a home.
        So, when we think about the proposals, not of good regulation, but
    of a nightmare proposal called Basel III Endgame that will put so much
    more capital on the sidelines, we should ask ourselves, how does that
    translate for the average American living and working paycheck to
    paycheck? My thought is that it has a devastating impact on access to
    capital that makes the American Dream harder to achieve and [makes]
    access to capital, for some folks who started where I started,
    virtually impossible.
        I think if you if you think about today's hearing from my
    perspective, I want to talk about three things. Number one is certainly
    Basel III Endgame, number two is the burdensome regulations and
    guidance that will ultimately hamper consumer choice, and number three,
    the job our regulators are doing, or frankly should be doing, and the
    work and the workplaces our regulators cultivate.
        I'll start as I just did with Basel III Endgame. The fact of the
    matter is that this one proposal could have a devastating impact on
    small businesses and I would like for you all to address that either
    now or during the questions.
        Last month, I led a letter to the FDIC, Fed, and OCC calling on
    them to withdraw this misguided proposal because American families, the
    folks who will bear the burden of [these] burdensome regulations,
    simply can't afford it. The letter was signed by nearly 80 percent of
    my Republican colleagues that really span the entire ideological
    spectrum and the country. Nearly every single person who has signed the
    letter did so because they all agreed that costly, harmful impacts on
    our constituents, our businesses, and their families is something that
    could be avoided if, simply, the banking regulators would listen to
    common sense and withdraw the proposal.
        And frankly, last month when the regulators spoke, even some of my
    Democrat colleagues agreed with our concerns on the negative impacts
    brought to us by a burdensome regulatory environment.
        Let me be clear, this proposal could limit, and frankly I think
    will limit, the following: availability of credit for housing for those
    who need it most, severely restrict lending for small businesses that
    are still rebounding from the pandemic, and cut into the retirement
    savings for hardworking Americans, like teachers, police officers,
    firefighters, when they're dealing with higher prices and runaway
    inflation and brought by the radical Left. These are very, very serious
    and real concerns.
        But Americans shouldn't just hear about the concerns from those of
    us who are senators, we should hear from those who actually run the
    institutions that they have and trust in and have confidence in. As a
    former business owner myself, I believe that you all, as the day-to-day
    operators of these businesses, not elected officials, have a better
    sense of what the communities are facing, the challenges brought upon
    the communities by these higher standards.
        Vice Chair Barr last month said that the new Basel Endgame will
    only impact about 40 of the banks in our country.
        Said differently: two-thirds of all the loans processed will be
    negatively impacted by the Endgame proposal. That's $60 billion in
    small business loans in 2021.
        If regulations continue to increase the costs of providing a loan,
    I fear that banks will decrease lending, not only in my home State, but
    across the country. The increased lending means increased financial
    hardship, and increased financial hardship means a reduction in
    opportunity.
        That's my ultimate concern, reducing opportunity for everyday
    Americans. At the end of the day, these consequences will create a
    ceiling for low-income Americans, and it won't be a ceiling made of
    glass, instead it will be made of concrete.
        We simply can't let that happen.
        The second item I want to discuss with you all today concerns the
    onslaught of rules and proposals targeting your institutions and the
    banking system writ large. For instance, in recent months, we have seen
    proposals or final rules all the way from climate risk management to
    the Community Reinvestment Act.
        None of these proposals exist in a vacuum, and it is vital that
    this committee hear from each of you about the overall impact on the
    health of our economy. In particular, I'm deeply concerned by the
    continued partisan attempts of this Administration to advance their
    climate goals by any means possible, including through our banking
    system, with the recent climate risk management guidance.
        Banks have been considering weather risks for decades--and you
    should--it's called common sense. And it remains incumbent upon each of
    you to base your lending decisions on risks you can reasonably assess,
    like weather or credit risk, not however, perceived political,
    rhetorical, or reputational risk.
        Beyond the explicit cost of these proposals, which ultimately are
    passed on to consumers, I fear that the only real accomplishments of
    the regulators will be to push more activity outside of the regulated
    financial system where we have less insight into the impacts on
    consumers.
        And finally, number three, we must emphasize and turn our attention
    to the performance of our regulators and their core mission--the
    supervision of your banks and the stability of our financial economy.
        This past spring, we saw the failures of several banks, which shook
    consumer confidence. Since then, there has been nonstop fingerpointing
    by our regulators. In the aftermath of the failures, I was critical of
    the failed bank executives because that's where the dollar should stop.
    The buck stops with the executives.
        But you can't see that in a vacuum--you have to ask yourself the
    question--what was the role of the regulators? What did they do? What
    did they see? How do they respond to that?
        Your institutions have teams of examiners from the regulatory
    agencies in your offices every day--and I can tell by your faces--
    you're really excited to see them when they show up.
        But the truth is that we, the American people, deserve to
    understand the complexity of the web that exists that makes the
    headwinds real for lending money to would be entrepreneurs, or first-
    time homebuyers.
        Let me close with this: we're not on the same page on a lot of
    issues. I think there are times when banks go too far in getting
    involved in politics. But when it comes to your objective of creating
    access to credit, to resources, for the American people and the
    American Dream--that's where I hope we find our attention today--
    focused on an environment that is easier for the average American to
    experience the American Dream, or it's made harder because of the
    challenges brought to them by this Government.
                                     ______

                    PREPARED STATEMENT OF CHARLES W. SCHARF
                    CEO and President, Wells Fargo & Company
                                December 6, 2023

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                  PREPARED STATEMENT OF BRIAN THOMAS MOYNIHAN
                       Chairman and CEO, Bank of America
                                December 6, 2023

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                       PREPARED STATEMENT OF JAMIE DIMON
                     Chairman and CEO, JPMorgan Chase & Co.
                                December 6, 2023

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                       PREPARED STATEMENT OF JANE FRASER
                                 CEO, Citigroup
                                December 6, 2023

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                     PREPARED STATEMENT OF RONALD O'HANLEY
                               CEO, State Street
                                December 6, 2023

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                       PREPARED STATEMENT OF ROBIN VINCE
                                CEO, BNY Mellon
                                December 6, 2023

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                      PREPARED STATEMENT OF DAVID SOLOMON
                               CEO, Goldman Sachs
                                December 6, 2023

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                     PREPARED STATEMENT OF JAMES P. GORMAN
                              CEO, Morgan Stanley
                                December 6, 2023

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                  Additional Material Supplied for the Record

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