Washington, DC – Today, Congressman Frank Lucas (OK-03) participated in a House Committee on Financial Services hearing with the CEOs of America’s largest banks. Lucas questioned Bank of America Chairman and CEO Brian Moynihan about the impact inflation is having on consumers and their banking practices.
Lucas also questioned J.P. Morgan Chase Chairman and CEO Jamie Dimon about federal regulators use of climate stress tests to politicize capital requirements and the competition U.S. banks are facing with the dramatic rise of state-owned Chinese banks in the global banking system.
Lucas: (Questions as prepared) Thank you, Madame Chair, for holding this hearing, and thank you to the witnesses for appearing today. The financial institutions you all represent, and the U.S. banking system at-large, plays a vital role in communities by protecting savings, delivering quick and secure payments, and providing access to credit. Banks will have to help their communities, businesses, and consumers weather the intense economic uncertainty we are in today. Inflation remains at a 40-year high. Businesses and consumers are still grappling with commodity price swings, elevated energy costs, a tight labor market, and supply chain disruptions. U.S. real GDP declined in the first and second quarters of 2022. The Federal Reserve will again raise interest rates today, which is designed to discourage consumption and business activity. How are you advising your customers on how to prepare for these conditions? Mr. Moynihan, what are you telling your folks out there?
Moynihan: I think with the amount of uncertainty, job number one is to deal with inflation. Inflation has impacts on, as my colleagues said, on the people who can afford it less. The impact in the mortgage market of raising rates feels not good. The reality is it needs to be done to slow down housing appreciation, because 20% per year housing appreciation is not a good thing for people to keep up with. So that’s job number one. And so, we talk to our clients it’s the same thing, the Federal Reserve raises rates to get inflation and then as not printing any as a consumer as a company as a small business, you understand what that impact is. It’s going to have an impact of slowing demand, it’s going have an impact of raising your cost of debt, and you should be making sure business plans and personal plans adjust for that.
Lucas: I remember the economic suffering we endured in the early 1980s when the Fed had to strangle high inflation out of the economy. I worry that the reckless policies and the excessive stimulus we’ve seen will make the Fed’s job much more difficult.
On climate stress tests
Lucas: During a recent speech, Fed Vice-Chair for Supervision, Michael Barr, discussed how the Federal Reserve is considering how to develop and implement climate-risk scenario analysis. I worry that the regulators could begin to use climate stress tests to shape and enhance capital requirements – which could have negative long-term economic consequences.Climate-scenario design and associated data remain considerable obstacles, as well as the high potential for politicization. Mr. Dimon, could you discuss your perspective on the argument that the Fed should tie climate-risk with increased capital requirements?
Dimon: So just for the folks here, we do 100 stress tests a week. We are quite worried about it. We always have been, we always did it. The Fed does one a year and it’s only one type. We do multiple different types. So, you know, among the stresses we’ve always had were hurricanes, storms, floods, things like that. So, to the extent it’s real like that, I’d say yes. To the extent for social public purposes to a bank do something different in how to finance oil and gas, absolutely not. And if they did that it would have an effect.
On Chinese banking competition
Lucas: One last question, state-owned Chinese banks continue to play a large international role. The Chinese Communist Party is intimately involved in the banking system and have the ability to influence banks’ lending activities and credit allocation. Mr. Dimon, could you discuss the challenges this creates in terms of global competition for U.S. institutions?
Dimon: It’s a very good point. We have to compete with global Chinese banks, the four largest and now the largest in the world, in terms of assets. They also operate in 50 or 60 countries which they didn’t do 20 or 30 years ago. They have less capital requirements than we do. They enjoy government support- the government wants them to succeed. And, I do look at that as not as today’s competition, but tomorrow’s competition. So, all the banks here play a different role in the ecosystem. But to banks, big companies, and countries and things around the world, you need big banks. If you want to bank Boeing, you have to operate in the 50 countries in which they operate and stuff like that. So, I’m going to do everything in my power to make sure we can compete with the best Chinese banks in the world. It’s very important to the future America that America has maintained its financial supremacy just like almost anything else.
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