(Bloomberg News) JPMorgan Chase & Co. Chief Risk Officer Barry Zubrow will tell Congress that regulators risk impeding the economic recovery by going too far in tightening bank rules and raising capital requirements.
"The regulatory pendulum clearly has now begun to swing to a point that risks hobbling our financial system and our economic growth," Zubrow said in testimony prepared for delivery tomorrow to the House Financial Services Committee.
A capital surcharge on the largest global banks combined with higher U.S. margin requirements for certain trading accounts "currently risks doing more harm than good," Zubrow said. It also puts U.S. firms at a "distinct and unnecessary competitive disadvantage," he said.
The remarks echo concerns expressed by JPMorgan Chief Executive Officer Jamie Dimon earlier this month, when he asked Federal Reserve Chairman Ben S. Bernanke whether he's concerned that overzealous regulation will stymie an economic rebound.
Zubrow is scheduled to testify along with Stephen O'Connor, a managing director at New York-based Morgan Stanley, and regulators including Federal Deposit Insurance Corp. Chairman Sheila Bair and Fed board member Daniel Tarullo.
Zubrow also said he opposes proposed rules that require companies to post extra margin against certain derivatives contracts, which are used to hedge interest-rate, currency and other risks. The rules restrict the types of collateral that may be posted to U.S. cash, Treasuries or agency securities. They also would require U.S. banks to demand collateral from foreign clients while European competitors don't, he said.
'Too Late'
"In addition, we are not permitted to accept margin in the form of, for example, Euro Cash and G7 Sovereign Debt," Zubrow said. "This effect will be to kill our overseas swaps activities; even if Europe and other regulators were to subsequently adopt similar rules, it would be too late."
O'Connor, chairman of the International Swaps & Derivatives Association, also will tell Congress tomorrow that policy and timing disparities between U.S. and international derivatives rules will disadvantage the nation's financial markets.
The differences will hurt the U.S. "by driving up costs and reducing liquidity," O'Connor said in prepared remarks. "They do so without demonstrating any clear benefit to equal or outweigh the considerable costs."
'Race To The Bottom'