MS Morgan Stanley

By Andrew Ackerman and Lalita Clozel 

WASHINGTON -- The heads of seven of the largest U.S. banks sparred with House Democrats on Wednesday, arguing the financial system is now much safer than during the last joint testimony a decade ago in the depths of the crisis.

Bank chiefs including JPMorgan Chase & Co.'s James Dimon, Citigroup Inc.'s Michael Corbat, Morgan Stanley's James Gorman and Goldman Sachs Group Inc.'s David Solomon told lawmakers that their firms were more tightly overseen and less risky, with some using the opportunity to press for eased regulation. Lawmakers peppered the executives with questions about possible new threats to the financial system and pressed them on issues such as economic inequality and guns.

"There's trillions of dollars locked up to hold liquidity, in perpetuity, " Mr. Dimon said. "You can actually change the capital in a way that makes the system safer" and spurs more lending, he added. With the CEOs lined up alphabetically, Messrs. Corbat, Dimon and Gorman were often called on first to answer questions during around six hours of questioning.

House Financial Services Committee Chairwoman Maxine Waters (D., Calif.) showed little patience for the banks, saying they are "simply too big to manage their own operations." She also criticized a series of settlements between the banks and their regulators, saying the firms were "chronic" lawbreakers and "too big to care about the harm they have caused."

Some Republicans criticized Democrats for holding the hearing, saying there was no clear purpose behind it other than to attack the nation's biggest lenders. "This is a hearing in search of a headline," said Rep. Patrick McHenry (R., N.C.), the ranking GOP member on the panel.

Asked about potential risks to the financial system, some of the executives pointed to leveraged lending, or banks' lending to highly indebted companies. While corporate credit is large by historical standards, Morgan Stanley's Mr. Gorman said, "I don't think it's dangerous." Several financial regulators, including Securities and Exchange Commission chief Jay Clayton, have raised concerns about growth in leveraged loans.

Wednesday's hearing marks the first time since February 2009 that chief executives of the major banks have appeared together at a congressional panel. The hearing is part of an opening salvo in House Democrats' plans to examine the industry's activities, though split control of Congress means it is unlikely to lead to any new legislation becoming law.

In an echo of the 2009 hearing, several of the chief executives skipped executive perks and traveled commercially to Washington. Mr. Corbat flew commercially while Messrs. Solomon and Bank of America's Brian Moynihan took Amtrak from New York.

Several Democrats sought to point to the CEOs as illustrations of growing U.S. income inequality. Rep. Nydia Velazquez (D., N.Y.) questioned Mr. Corbat over the ratio between his salary, $24 million in 2018, and the median pay of employees at his firm. "Believe me, it doesn't look good," she said.

Mr. Corbat said if he were to work under a boss with a much higher pay grade than his, "I would be hopeful that there's opportunities to continue to advance within the firm."

The CEOs of the five big Wall Street Banks -- Goldman Sachs, Citigroup, JPMorgan, Bank of America and Morgan Stanley -- w ere paid a combined $126 million in 2017, hitting the highest level since before the crisis. Tim Sloan, who resigned from his role as head of Wells Fargo after appearing before the same panel in March, was awarded $18.4 million in compensation for 2018.

Some of Ms. Waters's questioning fell flat, including whether the lenders had uncovered accounts tied to illicit Russian businesses. Most of the chief executives said their firms had no such connections. Mr. Corbat said he couldn't comment on internal investigations.

Democrats and Republicans pushed the CEOs to detail their relationships with gun companies. In one exchange, Rep. Carolyn Maloney (D., N.Y.) asked Mr. Dimon to adopt a policy on "responsible business" with the gun industry, and the JPMorgan chief said he would consider it.

Mr. Solomon said Goldman Sachs doesn't do business with companies that manufacture assault weapons, bump stocks or high-capacity magazines. Mr. Gorman said Morgan Stanley has "restricted our activities" with retailers of automatic and semiautomatic weapons. Both Citi and Bank of America announced last year after the Parkland, Fla., high school shooting that they were restricting ties to certain gun retailers and manufacturers.

Under questioning from Republicans, the executives said more risks lie in parts of the financial sector that are not as tightly regulated as banks, or "shadow banking."

The Federal Reserve and other financial regulators are overseeing a gradual rollback of controls put in place after the financial crisis in attempts to boost lending and the economy.

On Monday, the Fed moved to ease a rule requiring big banks to plan for their own demise in a plan that would allow them to file so-called living-will plans every four years rather than annually. Regulators also have proposed simplifying compliance with the Volcker rule, a Dodd-Frank provision that curbed risky trading by banks.

Write to Andrew Ackerman at andrew.ackerman@wsj.com and Lalita Clozel at lalita.clozel.@wsj.com

(END) Dow Jones Newswires

April 10, 2019 17:12 ET (21:12 GMT)

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