On Thursday, June 16, 2011, Barry Zubrow, the Chief Risk Officer of JP Morgan Chase, testified before the House Financial Services Committee, putting some "meat on the bones" of last week's well-reported comment of JP Morgan Chase's Chief Executive Officer Jamie Dimon. Dimon had publicly suggested to Federal Reserve Chairman Ben Bernanke that the cumulative effect of hundreds of impending bank regulations may retard an economic recovery.

Mr. Zubrow began by noting that, in the last eight years, the market share that U.S. banks held among the 50 largest global banks has dropped from 50 percent to 24 percent.

He acknowledged that most of the post-crisis reforms, such as applying capital requirements to non-bank, systemically significant firms (SIFIs) to limit leverage and regulating all originators of mortgages, will improve soundness without harming competitiveness. Had these changes been in place before the crisis, as well as required risk retention in securitization, merger of the Office of Thrift Supervision into the Office of the Comptroller of the Currency, and the imposition of supervision and reporting requirements on derivatives market participants and central clearing of most derivatives trades, Lehman Brothers would have been regulated and supervised like banks; AIG would have had to register as a major swap participant, report, and be subject to federal supervision; Countrywide and Washington Mutual would have been required to retain the risk of subprime mortgages they originated; and Washington Mutual would have been subject to national bank mortgage underwriting standards.

However, he also suggested that U. S. policymakers should focus on how much the proposed regulations collectively reduce risk-taking that is essential to funding business growth, while other countries reject or defer such regulations. The Volcker Rule has been rejected by other countries; our proposed margin requirement rule for derivatives is an outlier; U.S. rules, unlike those in the EU or Asia, require affiliates to post margin for derivatives trades within a banking group; and our stress tests are more stringent than those of any other country.

The concern here is multi-fold. First, on top of impending Basel III capital increases, which would correspond to increasing Tier 1 common equity, from a minimum of 4 percent (6 percent to be well-capitalized) of risk-weighted assets to more than 10 percent under the capital rules currently applicable, SIFIs and banking organizations with more than $50 billion in consolidated assets, under the Dodd-Frank Act, are to be subjected to more stringent capital standards, a so-called "SIFI surcharge," which a Federal Reserve Governor suggested last week could result in a 14 percent capital requirement. Second, the testimony noted that examiner supervision has increased. Third, the Dodd-Frank Act requires U. S. banks to push out derivatives activities into separately capitalized subsidiaries, thus depriving banks of a favorable cost of funding, a requirement not adopted by any other country and one opposed by each of the federal bank regulators. Fourth, a proposed requirement that all non-financial end-users of swaps should negotiate credit support arrangements with their swap dealers threatens margin requirements on the hedging activities of thousands of Main Street American companies, potentially inhibiting job creation.

Mr. Zubrow's testimony did not touch on a number of other aspects of the Dodd-Frank Act and its implementing regulations that some have suggested may adversely impact economic growth, such as the effect that proposed 20 percent down payment "Qualified Residential Mortgages" with low debt-to-income ratios exempt from risk retention requirements may have on recovery of the housing market, or the effect of a Durbin Amendment-triggered loss of an estimated $12 billion in annual revenue ($8 billion in annual after-tax earnings), will have on the banking industry's ability to build common equity capital. Mr. Dimon had asked Chairman Bernanke whether anyone had studied the cumulative economic effect of these regulations, and the Chairman responded that nobody had conducted a comprehensive analysis of the impact of all of this on credit, as it may be too complicated and quantitative tools are lacking. An in-depth study of this subject would be most informative.