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Wall Street Again Shamelessly Using Pandemic as a Pretext to Get More Deregulation: Lowering Capital Leverage Ratio Endangers Banking System, Makes Bailouts Likely

FOR IMMEDIATE RELEASE
Wednesday, July 29, 2020
Contact: Pamela Russell at 202-618-6433 or prussell@bettermarkets.com
 
Washington, D.C.  –  Dennis M. Kelleher, President and Chief Executive Officer of Better Markets, sends letter to Senate Banking Committee detailing why the leverage ratio and banks’ capital cushions are so important to financial stability and to avoiding taxpayer bailouts of Wall Street’s biggest banks:
 
“Wall Street’s biggest banks are lobbying to weaken capital requirements and increase their leverage in the face of unprecedented uncertainty and at the very same time they are ejecting tens of billions of dollars in dividend payments each quarter. However, now they are claiming without any evidence that this deregulation is necessary for them to support economic growth during the COVID-19 pandemic. This is false and proved false by their own actions. If those banks need capital that they were going to use to support Main Street families and businesses, as they claim, then they could and should stop paying dividends and use that capital to lend to Main Street. 
 
“Before key financial protection rules like the leverage ratio are weakened, Wall Street’s banks should put their own money where their lobbyist’s mouth is and redirect shareholder dividend payments to Main Street lending. The fact that Wall Street’s most dangerous too-big-to-fail banks refuse to do that proves that they are once again just shamelessly using the pandemic as a pretext for their deregulation agenda, which they have done since the start of the pandemic. It is also noteworthy that lowering banks’ capital and increasing their leverage also boosts executive compensation and bonuses.
 
“Because they did not have enough capital and there was no leverage ratio, each one of those Wall Street banks had to be bailed out in 2008 by the $700 billion in taxpayer TARP funds and $29 trillion from the Federal Reserve. The tier 1 capital leverage ratio was one of the most important post-2008 crash reforms to make sure that did not happen again. So far, those reforms—including importantly the leverage ratiohave worked to prevent the pandemic-caused economic shutdown from becoming a banking crash, as detailed here.
 
“Finally, as discussed in a letter Better Markets sent to the Senate Banking Committee, reducing required bank leverage ratios does not mean Wall Street’s banks will increase lending to Main Street at all. Thus, if there was an objective, evidence-based need to create specific incentives for the largest banks to lend more to Main Street families and businessesa need for which evidence has not been provided to the publicany actions taken to that end must be carefully constructed, calibrated and targeted to achieve that specific goal in measurable ways. Any such change, of course, should also be temporary and in place only for the duration of the specific need created by the COVID-19 pandemic.”
 
 
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Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and —make our financial system work for all Americans again. Better Markets works with allies – including many in finance – to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.com.  

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