Bank CEOs Prepared for a Grilling, Got Squabbling Instead
(Bloomberg Opinion) -- “I just beg you, let’s have a rational conversation, mature and thoughtful.”
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said this on Wednesday in response to a question about climate change, but he might as well have been speaking for the other leaders of the six largest U.S. banks after talking with members of the Senate Banking Committee. It was the first time that the top bankers all appeared before the group since the 2008 financial crisis — a rare opportunity for elected leaders to publicly address some of the country’s most influential business leaders. Yet rather than face a “grilling,” as some expected, senators quickly devolved into squabbling about pet topics. It’s yet another sign that banks were hardly the problem during the Covid-19 pandemic, in stark contrast to the previous downturn.
Senator Sherrod Brown of Ohio, a Democrat who chairs the banking committee, set the tone from the start. “No one can deny that this nation has been good to the financial industry,” he said. “But your banks haven’t held up your end of the deal … it’s past time for the financial industry to be as good to the American people as the nation has been to you.” He said that people remember that Wall Street received a “taxpayer bailout” and asked why banks were buying back shares when their overall lending was down.
The biggest U.S. banks are hardly perfect, but it’s inaccurate to suggest they didn’t play a key role in backstopping the world’s largest economy during the Covid-19 pandemic. Those with large retail operations, like JPMorgan, Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. allowed for deferred payments from small businesses and individuals and granted mortgage forbearances that wouldn’t negatively impact credit scores, something the Federal Reserve Bank of New York recently concluded was “an important policy tool to mitigate the impact of the pandemic.” They facilitated the Paycheck Protection Program, which encouraged small businesses to keep employees on their payrolls. In prepared documents, the banks went into detail about their initiatives to better serve minority communities and the underbanked, which are often one and the same. As I wrote last month, a main reason banks aren’t lending as much money is because Congress’s own fiscal relief efforts are doing the job for them.
Then there was Senator Pat Toomey of Pennsylvania, the Republican ranking member. “I am concerned about increasing pressure on banks to embrace ‘wokeism’ and appease the far left’s attacks on capitalism,” he said. He went on to scold bank leaders who have “embraced so-called stakeholder capitalism, which really diminishes the primacy of shareholders in our economy and encourages corporations to pursue a social agenda rather than prioritize its responsibility to its owners.”
Like many of his colleagues, he turned to a yes-or-no form of questioning, asking the six Wall Street executives if they thought capitalism was the best way to ensure prosperity for all. In a surprise to no one, they all agreed. As my fellow Bloomberg Opinion columnist Nir Kaissar pointed out a month ago, evidence suggests stakeholder capitalism is little more than a buzzword so far because companies over the past 10 years have boosted earnings largely by prioritizing profits. Banks are no different: In fact, the Federal Deposit Insurance Corp. released data Wednesday that showed they earned $76.8 billion in the first quarter, easily exceeding all previous records.
Suppose senators embraced Dimon’s plea for a “rational conversation.” They’d acknowledge that banks didn’t let Americans down during the pandemic and that their actions were certainly in no way comparable to the events that led to the financial crisis more than a decade ago. They wouldn’t fear for the fate of capitalism. They wouldn’t call out Bank of America CEO Brian Moynihan for getting too political for stating that “we must continue to right the wrongs of our past, and stand united in our advocacy for equal voting rights for all” in response to Georgia’s election overhaul. They wouldn’t be expected to immediately stop doing business with fossil-fuel companies, nor promise to work with them indefinitely; for the sake of not disrupting the economy, there needs to be a transition period.
It took hours before anyone asked a question about cybersecurity at America’s largest financial institutions, which, given last month’s ransomware attack on Colonial Pipeline Co., should have been a more high-priority topic of conversation. Citigroup CEO Jane Fraser, making her debut in front of Congress, said that cyber threats are among the greatest risks to the financial system and that it’s crucial to share intelligence about how to protect against such intrusions. Soon thereafter, the conversation turned back to the “woke crowd.”
Senators also missed an opportunity to press bank CEOs about the U.S. housing market, which is reaching levels unseen since the mid-2000s. The S&P CoreLogic Case-Shiller index of property values jumped 13.2% in March from the same month last year, the most since 2005, while April’s new home sales fell short of estimates. Glenn Kelman, CEO of Redfin Corp., posted on Twitter earlier this week about “how bizarre the U.S. housing market has become.”
When the topic did come up briefly, Dimon said “there is a little bit of a bubble” in housing. Fraser said it’s too soon to say. Wells Fargo CEO Charles Scharf called it a market-by-market issue, while Morgan Stanley’s James Gorman said some suburbs look frothy. Goldman Sachs CEO David Solomon refrained from calling it a bubble but noted “there’s a lot going on that’s inflating asset prices.”
That all sounds like something the public might want to know more about. Instead, as is too often the case, Wednesday’s hearing was more about the opportunity to score political points than discovering facts.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.
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