WASHINGTON — The industry's track record helping consumers and the economy navigate the pandemic, and individual banks' policies addressing climate change and social justice issues, are expected to take center stage when CEOs from the six largest institutions testify before Congress later this month.
It has been over two years since lawmakers
The banking sector is no longer the punching bag it was for Congress in the wake of the 2008 financial crisis. But the CEOs of Citigroup, Wells Fargo, JPMorgan Chase, Bank of America, Goldman Sachs and Morgan Stanley are still expected to come under sharp scrutiny on issues such as the Paycheck Protection Program, whether they have made progress on diversity and inclusion goals, and Republican-criticized decisions by certain banks to curb lending to gun and fossil fuel companies.
“This isn't a beloved industry, and there will always be issues and topics that will provide for attacks in public settings like this hearing," said Isaac Boltansky, director of policy research at Compass Point Research & Trading.
The six CEOs — Jane Fraser of Citi, Brian Moynihan of BofA, Charlie Scharf of Wells Fargo, Jamie Dimon of JPMorgan Chase, David Solomon of Goldman Sachs and James Gorman of Morgan Stanley — will testify before the Senate Banking Committee on May 26 and the House Financial Services Committee on May 27.
After spending the past year facilitating government-mandated loan forbearance requests from borrowers facing financial hardships, working with the Small Business Administration to distribute Paycheck Protection Program loans and taking other steps to mitigate the economic impact of COVID-19, some observers said the executives have a positive story to tell about the industry's role in the pandemic.
Regulators and lawmakers
“I don't think there's any doubt that they're in a better place than they were obviously right after the [2008] crisis,” a former congressional staffer said.
Ed Mills, a policy analyst with Raymond James, agreed that chief executives can emphasize that they were part of the solution to the coronavirus pandemic.
“During a significant shock to the system, the banks kind of were able to be leaned upon to support rather than the area that is being bailed out,” Mills said. “It is just fundamentally a different place for them.”
Still, Democrats have expanded their power in Washington since the last round of big-bank CEO hearings in 2019, taking control of the Senate in addition to the House.
Some lawmakers have criticized banks over allegations that they were providing concierge services to wealthy customers when distributing PPP loans, and concerns continue to grow about whether mortgage servicers will work cooperatively with struggling borrowers on workout options as they near the end of their forbearance periods.
Sen. Sherrod Brown, D-Ohio, and Rep. Maxine Waters, D-California, who chair the Senate and House committees, respectively, have made clear they intend to keep the heat on the industry.
At a recent conference with community bankers, Brown said, "People just don't trust the largest banks." He echoed that sentiment in a statement to American Banker, saying, “For too long, this committee has done the bidding of Wall Street instead of doing its job of overseeing the banking industry."
"We are going to take a close look at the risks these megabanks pose to the economy, how their influence affects the dignity of work, and what Congress needs to do to make sure these banks are fighting systemic racism, inequality, and climate change — rather than driving them.”
Waters said in a statement that the House Financial Services hearing is meant to "scrutinize banks’ response to the pandemic crisis, their diversity and inclusion results, policies and practices, their wage and compensation policies, their efforts to reach underserved communities, their response to climate risks, and other important issues.”
To some extent, the CEOs could find themselves caught in the middle of partisan bickering between Democrats and Republicans over companies' focus on environmental, social and corporate governance.
Just as progressives have applied pressure on banks to institute changes addressing climate change and the racial wealth gap, Republicans have harshly criticized banks when they do take a position on politically charged issues. Specifically, recent decisions by certain large institutions to reduce their business with disfavored industries like guns and fossil fuels drew a GOP outcry.
The CEOs could also face new pressure to weigh in on voting reform laws advanced by states such as Georgia that critics say will make it difficult for Black voters and other minorities to cast ballots.
“The whole ‘woke CEO’ issue has become a popular conservative battle cry these days,” the former congressional staffer said. “Whether Republicans are not happy with banks not doing business with fossil fuel companies or guns … and then you're going have Democrats wanting them to take a strong stand on the voting rights issues.”
Sen. Kevin Cramer, R-North Dakota, a member of the Banking Committee, introduced a bill in March intended to penalize banks that curb lending to energy producers and other industries. The legislation would prevent institutions that deny fair access from using Federal Reserve discount window programs.
Cramer said he met in Apriil with Dimon, the JPMorgan Chase CEO, to discuss the proposed measure.
“I am very encouraged by my meeting with Mr. Dimon,” Cramer said in a statement. “I believe he has a good understanding of my concerns regarding financial institutions categorically discriminating against legally operating industries, and he seems to clearly recognize working to reduce our carbon footprint does not mean shutting down America’s fossil fuel industry and ruining our economy in the process. I look forward to working with him and his peers on those and other mutual goals.”
Some observers said the big-bank CEOs could draw praise from members of the two committees for the steps they took to address the economic impact of the pandemic, such as offering deferred loan payment options to customers and committing funds to vulnerable communities.
A source close to the financial services industry said that the big banks are more optimistic about appearing before Congress this year than they have in the past, because banks were in a position of strength and were able to help consumers and small businesses weather the coronavirus crisis.
“We expect the vast majority of the focus to be on how banks worked to support the ‘real economy’ through the pandemic,” the source said. “How did they show up for consumers, for our communities and our small businesses?”
Banks believe that they have a positive narrative to tell about the customers who were able to keep their businesses open or stay in their homes as a result of the industry’s efforts.
“The banks have been a key source of support to the economy during this time,” said Kevin Fromer, president and CEO of the Financial Services Forum. “Their participation in the PPP, the banks were involved in facilitating about nearly $69 billion in PPP loans to roughly 850,000 small businesses. … They continue to provide and actually increase the provision of credit in various forms to their customers of all sizes.”
Richard Hunt, president and CEO of the Consumer Bankers Association, agreed that the industry helped keep the economy afloat.
"Without the willingness of a well-capitalized banking industry to partner with the federal government, the success of these federal relief programs would not have been possible, nor would the significant progress of our nation's ongoing recovery," Hunt said. "I hope these efforts are at the forefront of the discussions before the House Financial Services and Senate Banking committees."
But after Democrats won control of the White House and Senate, the role banks play in narrowing racial equities in the financial system and curbing the financial risks associated with climate change could also be at the forefront.
Some analysts expect progressive Democrats to push the bank CEOs to commit to improving their workforce diversity and lending to minority communities and minority-owned businesses.
Boltansky said a focus on the Paycheck Protection Program could force the bank CEOs to respond to criticism that the program aided many companies that did not need the support as much as others.
There will be a fair amount of time spent on PPP oversight broadly,” he said. “You can find a number of areas where the banks could have and should have done better.”
Fromer said that the big banks can point to many PPP successes, including a substantial portion of loans distributed through the program that went to businesses in underserved communities.
“Nine out of 10 loans went to businesses with 20 employees or less,” Fromer said. “About 35% of those loans were made in majority-minority census districts, so I think large banks’ performance in terms of reaching a variety of different parts of the country and the focus on the very smallest businesses was good.”
