Big banks are getting more aggressive with their regulators

This month, JPMorgan Chase (JPM) informed investors about a potential enforcement action by the Consumer Financial Protection Bureau (CFPB) that could target Zelle, the bank-owned payments app. Alongside this announcement, JPMorgan issued a cautionary note to the regulators.

In its quarterly filing dated August 5, JPMorgan disclosed that it is considering whether to take legal action against the CFPB in response to the inquiries regarding Zelle. The CFPB, along with some lawmakers, has expressed concerns about fraud on the platform, which is operated by seven banks, including JPMorgan.

"The firm is assessing its options, including the possibility of litigation," JPMorgan stated in its filing.

The possibility of suing bank regulatory agencies

In 2024, JPMorgan Chase has previously floated the idea of suing its regulatory overseers, and this isn't the first instance. Earlier in the year, in January, JPMorgan's CFO, Jeremy Barnum, mentioned the possibility of legal action against bank regulatory agencies concerning Basel III, a set of higher capital requirements for banks.

Barnum acknowledged that suing the bank's own regulators "is never a preferred option," but he also emphasized that "it can’t be taken off the table."

This assertive approach by the largest U.S. bank reflects a broader trend among major financial institutions pushing back against regulatory measures in Washington, D.C. Their efforts have met with some success, particularly in urging regulators to reconsider the Basel rule that mandates increased capital buffers to safeguard against future losses.

The willingness of regulators to change the proposal

This year, Fed Chair Jerome Powell and other regulators made it clear that major revisions are being made to that proposal.

Concerns about the proposed capital rule—seen as the most significant change to bank regulations since the 2008 financial crisis—include potential negative impacts on the U.S. economy and reduced access to mortgages for low-income homebuyers.

The regulators' openness to modifying the proposed rule underscores the considerable influence that major banks now wield in Washington, even amid a highly charged election year. This contrasts sharply with the intense political scrutiny banks faced in the wake of the 2008 financial crisis.

Regulators are advocating for banks to increase their capital reserves—cash-like assets that serve as a buffer during emergencies—to prevent future taxpayer-funded bailouts similar to the 2008 financial crisis. The failure of three midsize banks and a smaller one last year, driven by rising interest rates and losses from cryptocurrency ventures, has reinforced the need for greater capital reserves. This approach is mirrored globally, with financial regulators in the European Union and the United Kingdom also implementing similar standards.

In December 2009, President Barack Obama expressed this sentiment on "60 Minutes," stating, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street." He criticized the banks' actions, saying, "You guys are drawing down $10 [million], $20 million bonuses after America went through the worst economic year it’s had in decades, and you guys caused the problem."