Wall Street is pushing back against Congress’ newest financial regulations, saying that the restrictions will weaken banks and, in turn, the economy. Barry Zubrow, chief risk officer at JPMorgan (NYSE:JPM), gave testimony before the House Financial Services Committee to that effect.
The center of Wall Street’s concern is the Dodd-Frank Act, which reforms some of the industry’s biggest profit centers, including derivatives trading and debit card fees, imposing higher capital requirements on firms deemed to pose a systematic risk to the financial system by a council of regulators.
Financial institutions say the law threatens the competitiveness of U.S. markets, and note that the Basel Committee on Banking Supervision is already enforcing its own international capital requirements to which U.S. banks must adhere. The Basel III rules require that JPMorgan hold 45% more capital than it had stored away during the financial crisis.
Dodd-Frank also requires derivative contracts to be traded on regulated exchanges and run through clearinghouses, which banks claim could open the door to overseas banks that don’t have to follow such regulations to steal their business.
The Commodity Futures Trading Commission and the SEC constructed the plan, which should go into effect later this year. The European Commission and the EU both have discussed similar regulations, though they’re still in the earlier stages of development and implementation may not come until 2012 or later. In the meantime, U.S. banks would be required to collect margin from pension funds and other investors entering derivative deals, while their European competitors would not have to collect any upfront collateral, effectively destroying Wall Street’s derivatives business overseas.