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Top Wall Street CEOs will testify before Congress Wednesday. Here's what to expect.

The CEOs of America's largest banks will line up before lawmakers this week in a highly anticipated appearance to try and convince Washington — and the world — that the banking sector is back on steady ground following the regional banking crisis earlier this year.

The hearing before the Senate’s banking committee is part of Congress's annual oversight of the financial sector and will feature top bosses from Jamie Dimon of JPMorgan Chase (JPM) and David Solomon of Goldman Sachs (GS) to Brian Moynihan of Bank of America (BAC).

Much of the focus during Wednesday's hearing is set to be on the higher capital requirements proposed this summer by the Federal Reserve, called Basel III endgame measures, which the assembled CEOs have been lobbying furiously against for months.

"Ironically, a proposal to mitigate risk will create even more risk in the financial system," Dimon is set to say in his opening remarks, adding that it "will fundamentally alter the US economy in ways that the Federal Reserve has not studied or contemplated."

Other CEOs are set to echo the message with Solomon in his prepared remarks arguing the proposal "has a particularly negative impact to capital markets functioning."

UNITED STATES - SEPTEMBER 22: From left, Charles Scharf, CEO of Wells Fargo, Brian Moynihan, CEO of Bank of America, Jamie Dimon, CEO of JPMorgan Chase, Jane Fraser, CEO of Citigroup, William Rogers Jr., CEO of Truist, Andy Cecere, CEO of U.S. Bancorp, and William Demchak, CEO of The PNC Financial Services, raise their hands in response to a question during the Senate Banking, Housing, and Urban Affairs Committee hearing titled Annual Oversight of the Nations Largest Banks, in Hart Building on Thursday, September 22, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images)
Banking CEOs raise their hands in response to a question during a Senate Banking, Housing, and Urban Affairs Committee hearing on annual oversight of the largest banks on Sept. 22, 2022. (Tom Williams/CQ-Roll Call, Inc via Getty Images) (Tom Williams via Getty Images)

At the Goldman Sachs US Financial Services conference on Tuesday, the companies offered previews of other topics that could come up at Wednesday's hearing.

The assembled CEOs touted the resilience of the US economy during their speeches in New York but urged restraint when it comes to 2024 expectations. Wells Fargo CEO Charlie Scharf also weighed in on the Fed's capital regulations, saying the requirements could limit his bank’s activities in the future.

The CEOs of Citigroup (C), Wells Fargo (WFC), State Street (STT), BNY Mellon (BK), and Morgan Stanley (MS) will also be testifying at the hearing before a panel of 23 senators.

The questioners will range from Chairman Sherrod Brown (D-Ohio) to other prominent figures, including two former presidential candidates: Sen. Tim Scott (R-S.C.) and Elizabeth Warren (D-Mass.).

A focus on capital requirements

The central issue Wednesday is set to be the so-called Basel III measures that were first developed following the global financial crisis of 2007-2009.

The final set of these rules unveiled this summer focused on the amount of capital that banks must have in reserve to protect themselves from insolvency, which regulators are hoping to finalize in the coming months.

The standards took on a new urgency this spring after banks like Silicon Valley Bank and Signature Bank failed, largely due to a shortage of liquidity.

WASHINGTON, DC - SEPTEMBER 12: Committee chairman Sen. Sherrod Brown (D-OH) talks to ranking member Sen. Tim Scott (R-SC) as they arrive for a Senate Banking Committee hearing on Capitol Hill September 12, 2023 in Washington, DC. The hearing focused on oversight of the U.S. Securities and Exchange Commission. (Photo by Drew Angerer/Getty Images)
Committee Chairman Sherrod Brown (D-Ohio) talks to ranking member Sen. Tim Scott (R-S.C.) at a recent Senate Banking Committee hearing on Sept. 12. (Drew Angerer/Getty Images) (Drew Angerer via Getty Images)

The proposal would raise banks' capital requirements by 16% in aggregate and widen the scope of new requirements to institutions with as few as $100 billion in assets — an effort to include smaller banks like SVB.

A new memo released Tuesday by the Financial Services Forum — which represents all eight CEOs —argued in part that this year's banking crisis shows that the stricter requirements are not needed.

The group's president and CEO, Kevin Fromer, wrote about how America's largest banks "acted as a source of strength during the COVID-19 pandemic and the banking turmoil of 2023," arguing that the current proposal goes beyond the original framework and that the nation’s largest banks have already tripled their capital levels over the past 15 years.

The memo also noted that Wednesday's hearing will be an opportunity to discuss "how the Basel 3 Endgame capital proposal would harm consumers, businesses of every size and the economy as a whole."

While Fed vice chair for supervision Michael Barr proposed the new outline this summer, not every member of the central bank has been on board.

Fed Governor Christopher Waller recently called the proposal "excessive" in a conversation with the American Enterprise Institute. He told the think tank last week that if the proposal did away with separate requirements for so-called operational risk — risk from potential losses from disruptions due to internal mismanagement like fraud, or external shocks like a cyberattack — that he could support the proposal. The capital requirement for operational risk is a major sticking point with the banks.

"Michael Barr knows he went too far on a few things," said David Wessel, a senior fellow in economic studies at the Brookings Institution. He predicted that Washington will refine some areas including provisions around operational risk in the months ahead as lawmakers work to finalize the proposal.

Wednesday's hearing is likely to feature the CEOs tailoring their message to moderate lawmakers in the room who could help sway the coming requirements — Democrats like Sen. Jon Tester (D-Mont.) and Mark Warner (D-Va.) who have raised concerns about the requirements.

They are likely to have a less receptive audience from more left-leaning figures on the committee like Brown and Warren. Sen. Brown said this summer that he supported the requirements, noting when banks fail "workers and small businesses pay the price."

On the other side of the aisle, Republicans like committee ranking member Tim Scott have often criticized the proposal, including by leading a recent letter signed by every Republican member of the Senate Banking Committee calling on the Biden administration to withdraw the Basel III endgame entirely.

But at the end of the day, Wessel noted "it's not really up to Congress" how the rules are finalized. "The real audience here is people like Jay Powell."

A host of other issues on the docket — from the national debt to CEO salaries

Wednesday's hearing is also likely to touch on an array of other concerns as senators weigh in.

The CEOs have appeared before Congress annually since the 2007-2009 financial crisis and are often asked to weigh in on a wide array of topics. Sen. Warren in particular has often confronted CEOs like Dimon over issues like Zelle fraud in 2022 and overdraft fees in 2011.

US Senator Elizabeth Warren, Democrat of Massachusetts, questions bank CEOs including Charles Scharf (L), CEO and President of Wells Fargo, Brian Thomas Moynihan (2nd L), Chairman and CEO of Bank of America, Jamie Dimon (2nd R), Chairman and CEO of JPMorgan Chase, and Jane Fraser (R), CEO of Citigroup, as they testify during a Senate Banking, Housing, and Urban Affairs Committee Hearing on the Annual Oversight of the Nation's Largest Banks, on Capitol Hill in Washington, DC, September 22, 2022. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)
CEOs listen to questioning from Senator Elizabeth Warren in 2022. (SAUL LOEB/AFP via Getty Images) (SAUL LOEB via Getty Images)

Consumer issues are also expected to be brought up, notably a proposed rule by the Consumer Financial Protection Bureau to rein in credit card late fees and cap late fees at $8 unless a bank can show it needs to charge more than that to collect late payments.

Read more: What are bank fees, and how do I avoid them?

Another possible issue: a bipartisan bill that advanced this summer to "claw back" the compensation from bank executives who oversee a failure.

The bill was overwhelmingly approved in June in a vote of 21 to 2 by the same group — the Senate's Committee on Banking, Housing, and Urban Affairs — that the CEOs will be testifying before. If that bill eventually passes, it would grant the Federal Deposit Insurance Corporation (FDIC) new powers to take back money from CEOs if a bank is shown to have "failed at the basics of bank management."

The wide-ranging impacts of America's ballooning national debt could also be high on the agenda with CEOs sounding the alarm in recent months over America’s borrowing, which now stands at nearly $34 trillion.

In an interview with Yahoo Finance last month, Dimon also stressed the need for Washington to change its ways on things like regulations that he says are hurting US competitiveness.

"D.C. goes out of its way to make it hard for small to large businesses to grow and expand," he said at the time, comparing regulations to barnacles and noting, "I'm in favor of good regulations, just not endless regulations."

This post has been updated with additional developments.

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