WASHINGTON — A top JPMorgan Chase & Co. official will tell lawmakers that an international regulatory plan to charge the largest banks an extra fee for the risk they pose to the economy is unnecessary and unfair.
A surcharge for the most systemically important financial institutions "is a bridge too far, and creates costs that risk exceeding the diminishing benefits of higher capital requirements above Basel III minimums," Barry Zubrow, JPMorgan's Chief Credit Risk Officer said in prepared testimony ahead of Thursday's House Financial Services Committee hearing.
At issue is a proposed capital surcharge for systemically important financial institutions, or SIFIs. Under proposed Basel III requirements, all banks would have to hold 4.5% of common equity by 2015, plus a conservation buffer of 2.5% that would take effect in full in 2019.
International regulators have discussed an extra capital charge for the largest institutions, and most analysts have expected it to be roughly 3%. The Basel Committee on Banking Supervision is expected to release its proposal on the surcharge in July.
However, a recent speech by Fed Gov. Daniel Tarullo, who is also testifying at the hearing, has stoked fears that the surcharge could potentially be as high as 7%. Federal Deposit Insurance Chairman Sheila Bair and acting Comptroller of the Currency John Walsh, along with others, are also scheduled to testify.
If a minimum of 7% was required for the nine U.S. banks likely to be deemed systemically significant by the Basel Committee, they would have to "absorb a loss equal to two years of their average losses during the financial crisis — $203 billion."
As a result, JPMorgan, he said, would have to hold roughly 45% more capital than it did during the crisis.
"In the context of all the other changes being made, it is difficult to understand how one could justify a surcharge for U.S. banks in addition to its Basel III requirement," said Zubrow.
Separately, he said, while Dodd-Frank calls on U.S. regulators to impose a capital charge on large banks, he said there is no reason to believe that Congress intended the charge to be as large as some supervisors have suggested are considering in the range of 100-300 basis points on top of Basel III minimums.