MWD Morgan Stanley

By Andrew Ackerman and Lalita Clozel 

WASHINGTON -- The chief executives at seven of the largest U.S. banks faced adversarial questioning from House Democrats on Wednesday, as lawmakers evaluated changes in the industry since the financial crisis.

Bank chiefs including JPMorgan Chase & Co.'s James Dimon, Citigroup Inc.'s Michael Corbat and Goldman Sachs Group Inc.'s David Solomon told skeptical lawmakers that their firms were safer and more tightly overseen than they were a decade ago.

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

"As policy makers we must evaluate what it will take to rein in chronic lawbreaking by the biggest banks," she added.

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.

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.

Anticipating tough questions, banks and their industry group, the Financial Services Forum, spent weeks preparing and developed detailed policy briefings on everything from executive compensation to diversity issues.

The banks or their industry group have met with each of the 60 members of the panel, with the exception of freshman Rep. Alexandria Ocasio-Cortez (D., N.Y.). Industry officials said she declined to meet with them.

A spokesperson for Ms. Ocasio-Cortez declined to comment.

Big-bank CEOs were lightning rods a decade ago for the anger and misery fueled by the crisis, when many home prices collapsed and unemployment jumped amid a deep recession. At Wednesday's hearing, the bank executives stressed that their industry is healthier and better capitalized than it was 10 years ago.

"While we will never lose sight of the lessons learned, postcrisis reforms have addressed key concerns," said Mr. Dimon.

"Since the crisis, reforms have made banks much safer and sounder in three important areas: capital, liquidity and resolution recovery," he added.

Some Democrats sought to point to the CEOs as illustrations of growing income inequality in the U.S. 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. "People who live in a bubble ... don't understand why there is so much anger out there."

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 Chase, Bank of America and Morgan Stanley -- were 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, including a $2 million incentive award announced by the bank a day after the contentious hearing.

Some of Ms. Waters's questioning of the bank executives fell flat, including an initial set of questions about whether the banks had uncovered accounts tied to illicit Russian businesses. Each of the chief executives said their firms had no such connections or couldn't comment on internal investigations.

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

Rep. Bill Posey (R., Fla.) asked several banks to describe their relationships with companies that manufacture guns for the military, saying "I have noticed a recent trend to withhold or withdraw banking services from completely legal businesses."

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.

Banks have been criticized on both sides for their relationship to gun companies, with some Democrats calling for financial institutions to sever their ties in the wake of the Parkland, Fla., high school shooting last year and some Republicans criticizing banks who did.

Citi announced it would no longer partner with retailers that sell guns to customers under the age of 21 or who haven't passed a background check, and Bank of America said it would stop lending to manufacturers of military-inspired rifles.

In all, seven bank CEOs appeared before Ms. Waters's panel on Wednesday. In addition to the heads of JPMorgan, Citigroup and Goldman, they include Morgan Stanley's James Gorman, Bank of America Corp.'s Brian Moynihan, State Street Corp.'s Ronald O'Hanley and Bank of New York Mellon Corp.'s Charles Scharf.

(END) Dow Jones Newswires

April 10, 2019 12:38 ET (16:38 GMT)

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