WASHINGTON, D.C.— Dennis M. Kelleher, Co-founder, President, and CEO, issued the following statement in connection with Better Markets’ new Fact Sheet, “Wall Street Banks Are Trying to Return to Dangerously Low 2007 Capital Levels, Again Endangering Main Street Jobs and Homes”:

“The catastrophic 2008 crash was largely caused by Wall Street’s megabanks having too little capital to absorb their own losses. In 2007, those gigantic banks only had 4% capital and 96% debt, meaning even small losses would cause them to be bankrupt. That was great for them because the lower the capital the higher the executive compensation, which reached record highs in 2007. But when the losses from their dangerous, high-risk profit and bonus maximizing activities exceeded their tiny sliver of capital, they went bankrupt, and taxpayers and the government had to bail them out by injecting capital into those banks to prevent them from causing another Great Depression.

“That’s the choice: either banks have enough capital to prevent their bankruptcy in the first place or Americans are forced to inject capital into the banks to prevent them from failing and devastating the country. That’s what bailouts are: after the fact capital injections to make up for the capital the banks didn’t themselves have before failing.

“Now, just 17 years after the horrific 2008 crash and just 2 years after the costly 2023 banking crisis, Wall Street’s megabanks are pushing to get their capital back down to the dangerously low level of 4% that they had in 2007, as detailed in a Fact Sheet being released today. They are doing this in a largely unseen multi-step, multi-year process that will result in a massive reduction in capital, about a 33% decrease from an already inadequate 6% today to 4%.  The actions of Wall Street’s megabanks and their allies (in reducing capital and all the other deregulation they are pushing) will all but guarantee another financial collapse, taxpayer bailouts, and devastation on Main Street while Wall Street executives once again collect tens of billions of dollars in bonuses.

“While maximizing profits and pay is what private companies do, it’s extremely dangerous for all Americans, the financial system, and our economy when Wall Street megabanks backed by taxpayers do it. Minimizing capital to 4% while maximizing debt to 96% is an insane amount of leverage for anyone, but especially for a Wall Street megabank with a vast range of high risk, dangerous activities that frequently result in substantial losses. That is living out at the very edge of the risk spectrum. That would be fine if the consequences of taking that much risk fell on those taking the risk, but Wall Street’s too big to fail megabanks don’t suffer the results of the risks they are taking – the American people do, as proved in the aftermath of the 2008 crash.

“Imagine a Main Street American going to a Wall Street megabank and offering a 4% down payment to borrow 96% for a mortgage to buy a house. The bank would not take that risk and would demand the borrower put 20% down to protect the bank from losses. Yet, that very bank wants to run its much, much more dangerous business with much greater consequences for the country just that way. It’s wrong; it’s dangerous; and the megabanks plan to lower capital to 4% should be stopped.

“The American people deserve to know the truth about the ultimate goal of the country’s largest banks—as detailed in our new Fact Sheet—and more importantly deserve banking regulators, policymakers, and elected officials to do their job to protect Main Street Americans from the catastrophic consequences of under-capitalized systemically important banks.”

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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.org.