Banks tell Fed that eliminating firms that are “too big” is “misguided”

Jamie Dimon

In a Friday letter to the Federal Reserve, lobbying groups for some of America’s largest banks said that the regulator is trying to shrink the firms based on a widespread idea that “big is bad.”

“We submit that an approach grounded in a ‘too big’ or ‘big is bad’ concept is not only contrary to Congress’ intent but is misguided and detrimental to a sound, strong banking system and a strong economy,” the groups said in the letter, Reuters reports.

The letter was composed by the American Bankers Association, the Financial Services Roundtable, the Clearing House Association, the Financial Services Forum, and the Securities Industry and Financial Markets Association. The groups represent the largest banks in the U.S., including Goldman Sachs Group, Inc., Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup, Inc.

Following the 2008 financial crisis, the 2010 Dodd-Frank Act mandated that the Fed write rules to more tightly regulate bank holding firms that have more than $50 billion in assets in order to ensure the reduced systemic risk that the companies pose to the U.S. financial system, according to Reuters.

The groups maintain, however, that a new Fed rule on capital standards is contrary to the intent established by Dodd-Frank. The groups argue that banks of many sizes are beneficial to the economy and that larger banks can provide certain services that smaller banks are not yet able to.

“In the 21st century, companies served by international banks compete in a global economic system,” the groups said, Reuters reports. “They need banks that are competitive around the world and are able to meet quickly and efficiently a wide range of financial needs.”

The groups also voiced concern about a Fed proposal that would limit the credit exposure of large financial institutions to a single counter-party as a certain percentage of the corporation’s required capital. Larger banks, however, with $500 billion or more in consolidated assets, would not be allowed a credit exposure of more than 10 percent to another bank of similar size.

The groups said that this proposal is “unrealistic and one dimensional,” according to Reuters.

The letter comes as Fed Governor Daniel Tarullo prepares to meet next week with the CEOs of America’s largest banks, including JPMorgan Chase & Co. CEO Jamie Dimon. During the meeting, the Fed’s annual stress tests will be discussed along with other Fed proposals.

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