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New bank rules could push mortgage rates up 30%: Analyst

Eight Wall Street CEOs testified before the Senate Banking Committee on Wednesday, and the primary topic of discussion centered on a new proposal to raise capital requirements at these firms.

And banking analyst Meredith Whitney warns these rules won't just present a new challenge for the banks, but could create a new headache for American homeowners.

"The proposals under the Basel III Endgame are going to hurt the consumer, that's just a fact," Whitney, who is best known for her prescient calls ahead of the 2008 financial crisis, told Yahoo Finance Live in an interview. "The risk is for the US consumer, which is that capital will be harder to come by for small businesses, and the individual, and it can be more expensive."

In Whitney's view, this new difficulty in accessing capital could push mortgage rates higher by up to 30% from current levels.

Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?

As Treasury yields rose in the fall, the average 30-year mortgage rate hit a multi-decade high approaching 8%, pressuring homebuyers already facing record-high prices amid a lack of inventory.

Whitney, now CEO of the Meredith Whitney Advisory Group, also recently told Yahoo Finance she sees a new risk for the housing market along with potentially higher costs — a "silver tsunami" of baby boomers downsizing that could send home prices tumbling.

'Borne by the customer base'

JPMorgan (JPM) CEO Jamie Dimon warned Wednesday that new capital requirements could make mortgages and loans to small businesses more expensive, while also pushing up consumer prices and the cost of saving for retirement.

The cost of originating and holding mortgage loans will rise, in Dimon's view, in part because the cost of securitizing them will rise for banks, non-banks, and government agencies.

Whitney also cautioned the Fed's proposal would drive even more banking out of the regulated banking system and into the non-regulated banking system, pushing more activity to predatory lenders and causing lending to become much more expensive.

"That's what you've seen over the last 10 to 12 years,” says Whitney. "Whereas these guys [big banks] used to dominate the mortgage industry, and now 70% of the mortgage industry is done outside of the banking system."

This summer, the Fed proposed raising banks' capital requirements by 16% in aggregate and widening the scope of new requirements to institutions with as few as $100 billion in assets, which would include smaller banks like Silicon Valley Bank, which failed in March.

From left to right, Charles Scharf, CEO and President of Wells Fargo and Company; Brian Thomas Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, Chairman and CEO of JPMorgan Chase; Jane Fraser, CEO of Citigroup; Ronald O’Hanley, CEO of State Street; Robin Vince, CEO of BNY Mellon; David Solomon, CEO of Goldman Sachs; and James Gorman, CEO of Morgan Stanley, are sworn-in as they testify during a Senate Banking Committee hearing at the Hart Senate Office Building on December 06, 2023 in Washington, DC. The committee heard testimony from the largest financial institutions during an oversight hearing on Wall Street firms.
Big bank CEOs, including JPMorgan's Jamie Dimon, Goldman Sachs' David Solomon, and Bank of America's Brian Moynihan, testify during a Senate Banking Committee hearing on new rules on December 06, 2023, in Washington, DC. (Photo by Win McNamee/Getty Images) (Win McNamee via Getty Images)

The proposal, known as the Basel III Endgame, has been prescribed by financial crisis-era law Dodd-Frank for a decade to put the world on equal footing.

Banks have argued the proposal would go beyond the Basel framework and require them to raise capital by 20%-25% as well as require them to hold 30% more in capital-per-loan compared with international standards.

"If you have the same capital requirements increased by 20% to do the exact same activities you did yesterday, you have to get a higher return and that higher return will be borne by the customer base," Bank of America CEO Brian Moynihan told Senate lawmakers on Wednesday.

And if these rules are designed to prevent another version of the 2008 financial crisis, then this proposal falls short, in Whitney's view.

"I don't think that any of this additional capital would have prevented Silicon Valley Bank failure," Whitney said.

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