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SBC Wall Street Hearing

Senate Committee on Banking, Housing, and Urban Affairs                                                             

Annual Oversight of Wall Street Firms

Wednesday, May 26, 2021

Witnesses

Opening Statements
Chairman Sherrod Brown (D-Ohio)
In his opening statement, Brown said this hearing is the first time they have ever had the CEOs of the six largest banks before the committee. He said the decisions of these banks impact the lives of millions of Americans, and their power is greater than their predecessors. Brown said he does not mind that bankers are rich, but under the current system, he asserted that Wall Street seems to profit no matter what happens and that it is often at the expense of workers. He added that today, the financial sector makes up of 25 percent of corporate profits, yet only four percent of U.S. jobs. He expressed frustration that in his view, most of their capital raised goes to stock buybacks and only about 15 percent goes to the real economy. Brown argued that these CEOs should bear more social responsibility. He concluded by outlining his hope that the witnesses will prove to Congress that they will use their positions to change the Wall Street system and make the economy work for everyone. 

Ranking Member Pat Toomey (R-Penn.)
In his opening statement, Toomey said the financial system proved to be resilient during the pandemic, but added that he is worried about increasing pressure on banks to embrace “wokeism” and appease attacks on capitalism. He cautioned that continuing down this path could lead to distorted credit allocation and ultimately diminish prosperity for Americans. Toomey said the financial system’s contributions to economic growth before and during the pandemic is part of the larger success story of capitalism, a system that he asserted is critical in lifting people out of poverty, creating opportunity, and producing a higher standard of living. Toomey expressed his shock and concern to see bank leaders take actions that can lead to politicized lending and embracing “stakeholder capitalism,” which he argued diminishes the primacy of shareholders and pursues a social agenda. He concluded in saying if there is an issue within the political realm that impacts a bank, like taxes or regulatory policy, he hopes the banks would articulate views on behalf of their shareholders, but leave social issues, like voting access, to the elected lawmakers.

Testimony
Charles Scharf, CEO and President, Wells Fargo & Co
In his testimony, Scharf said Wells Fargo continued to support their customers and broader communities throughout the pandemic, noting that they deferred payments and waived fees for over 3.7 million accounts and were one of the leading lenders in the Paycheck Protection Program (PPP). He said today, Wells Fargo serves one-third of U.S. households and more than ten percent of middle-market companies in the country, and views itself as an industry leader in affordable housing, retail mortgage, and commercial real estate lending. Scharf said Wells Fargo feels uniquely positioned to serve customers around the country with their customer feedback program, large branch network, and extensive financial inclusion efforts. Scharf said he is committed to Wells Fargo employees and increasing diversity, equity, and inclusion efforts as well as assisting lower-middle income (LMI) communities. In terms of their approach regarding risk and societal engagement, Scharf outlined that Wells Fargo has launched a new Social Impact and Sustainability strategy to focus on community needs and put into place more transparent and comprehensive environmental, social, and governance (ESG) risk disclosures. Finally, Scharf said Wells Fargo is committed to implementing procedures governing the safe and responsible use of technology, investing in cyber threat management and personal data privacy practices, engaging in research on distributed ledger technology (DLT), and closely following developments around cryptocurrencies.

David Solomon, CEO and President, Goldman Sachs
In his testimony, Solomon said Goldman Sachs was well capitalized before and throughout the COVID-19 pandemic and that these capital levels have allowed them to serve clients and provide support for the economy. He said they have devoted substantial resources across the firm to improve their resiliency and resolvability as well as reduce structural complexity to improve efficiency. Solomon said that throughout the pandemic, they continued to invest in their people, retail customers, and the broader economy. Examples that he cited included launching their Customer Assistance Program to help customers navigate financial stress and provide flexibility to defer loans, as well as their Urban Investment Group (UIG), which has financed the creation of affordable housing, space for educational and health facilities, and grocery stores in food deserts. He added that Goldman has also invested over $200 million in capital to support Black-led Minority Depository Institutions (MDIs). Through their Small Businesses program, Solomon said they announced an additional $250 million commitment to serve 10,000 businesses in 2020. With respect to diversity and inclusion efforts, he said that since becoming CEO, he has been vocal about the importance of advancing Goldman’s diversity, including gender, race, sexual orientation, gender identity, veteran status and disability. Solomon said that as of July 1, 2021, their five most recently appointed independent directors will be women and they are continuing to increase the diversity of their workforce. He concluded by outlining developments addressing climate risk, noting that they have been carbon neutral since 2015 and are targeting net-zero greenhouse gas emissions by 2030, thereby aligning their financing activities with the goals of the Paris Agreement.

Jane Fraser, CEO, Citigroup
In her testimony, Fraser said she believes Citi proved itself to be a very different bank post-pandemic than the one that entered the 2008 financial crisis, as they have worked to become a smaller, stronger, and less complex institution. She highlighted that Citi has remained the leading financer of affordable housing in the country for the past 11 years. She said Citi serves many mid-sized American companies looking to expand both domestically and internationally, finances critical infrastructure for state and local governments, and works to provide stellar execution as their clients navigate evolving global factors such as ESG, wellness, mobility, and fintech. Moving forward, she said Citi’s priorities will focus on building financial inclusion to support an inclusive recovery, excelling in their risk and control environment, and setting clear governance and controls for cryptocurrencies and emerging technologies. Fraser said in all of their efforts, Citi will continue to promote sustainability, equity, diversity, and human rights.

Jamie Dimon, Chariman and CEO, JPMorgan Chase & Co.
In his testimony, Dimon highlighted many major examples of how JPMorgan Chase contributed to customers, clients, and the economy during the pandemic including: 1) offering $2.3 trillion of credit for consumers and businesses; 2) extending forbearance options for nearly two million accounts; and 3) committing $250 million in philanthropic initiatives for underserved small businesses and nonprofits. He said they are proud to have participated in various Federal Reserve emergency programs, such as the PPP, Primary Dealer Credit Facility, Commercial Paper Funding Facility, Money Market Mutual Fund Liquidity Facility and the Secondary Market Corporate Credit Facility. Dimon said the events of last year exacerbated longstanding inequality for Black families and increased barriers to wealth creation, and as such, JPMorgan has committed $30 billion over five years to advance their commitment to racial equality. In terms of risk management, Dimon said they devote special attention to compliance with the laws and regulations governing anti-money laundering, terrorist financing, economic sanctions and anti-corruption efforts. He emphasized that cybersecurity is an incredibly important priority for the firm, as well as a serious national security concern. Dimon concluded with policy recommendations that he believes will help address longstanding racial and economic inequalities: 1) increasing the federal minimum wage; 2) reforming the Earned Income Tax Credit (EITC) by raising the maximum credit and income limit; 3) increasing resources for the Small Business Administration (SBA) Microloan program; 4) making the SBA Community Advantage program permanent; and 5) supporting comprehensive housing reforms to expand affordable housing and homeownership for underserved communities.

Brian Moynihan, Chairman and CEO, Bank of America
In his testimony, Moynihan said this past decade has been transformative for Bank of America in their approach to running the company and pushing for “responsible growth,” which he outlined as growing sustainably in the market with a customer focus while ensuring a comprehensive risk framework. He mentioned their efforts to support clients through their own relief program, the Client Assistance Program, as well as government programs like the PPP, stimulus payments, and unemployment insurance. Moynihan said Bank of America has worked to provide important resources to local communities to support health and safety as well as boost racial equality, economic opportunity and affordable housing. He said in terms of improving overall client experience, Bank of America is committed to the thoughtful and responsible use of emerging technologies and artificial intelligence (AI), and are continuing to evaluate cryptocurrency risks and applications of DLT and blockchain. Moynihan concluded by emphasizing Bank of America’s commitment to fostering a diverse and inclusive workplace and supply chain, providing competitive wages and benefits, and achieving net zero greenhouse emissions in their financing activities and operations before 2050.

James Gorman, Chairman and CEO, Morgan Stanley
In his testimony, Gorman said the pandemic has highlighted serious humanitarian and economic issues. In response, he emphasized that Morgan Stanley has been, and continues to be, extremely focused on serving clients, communities, and employees. Gorman said they helped corporate and institutional clients raise additional liquidity and obtain financing, including over $50 billion in capital for the industry sectors most affected, and healthcare capital for both Moderna and Pfizer which included a sustainable bond issuance by Pfizer to support patient access to medicines and vaccines. Gorman said they worked to guide their retail clients and help manage their investment portfolios amidst extreme volatility. He said Morgan Stanley provides a stable foundation of support during any market environment, acting as financial advisors to help companies raise equity and debt capital, assisting public sector entities raise municipal financing, and aiding pension and mutual funds manage their assets. Gorman emphasized their large presence in the market by noting that Morgan Stanley manages of $5.6 trillion of assets for households and institutions. He said they remain committed to their communities as well as racial and social justice, adding that they began a program to provide 60 students with full four-year scholarships to Howard University, Morehouse College and Spelman College – three of America’s leading Historically Black Colleges and Universities. Gorman concluded in saying they remain concerned with climate risk and are working to mitigate its effect on the future.

Question & Answer
Climate Risk
Toomey said Citi committed to ending all financing to thermal coal companies and asked Fraser if she has established a similar policy prohibiting the financing of oil or natural gas. Fraser said their goal is to support their clients responsibly and help transition towards cleaner energy, but there is no plan to have a prohibition.

In response to a question from Sen. Chris Van Hollen (D-Md.), Dimon said there needs to be a conversation on climate, a carbon tax, and industrial policy, and that it is not enough for banks to just stop financing. Gorman said he would like to see alternative sources of energy but they are certainly trying to get away from coal dependency. Moynihan said they are ready to help their clients transition. Solomon said they are working with clients on the transition and have made commitments on improving their own carbon emissions. Scharf said they are focused on assisting their clients in the transition.

Daines asked Moynihan how their ESG initiatives impact their client selection and lending criteria. Moynihan said they have a series of risk assessments for each individual case.

Sen. Tina Smith (D-Minn.) focused her questioning on whether the SEC should issue a rule setting out a standardized climate risk disclosure framework and requested the witnesses’ opinion on this issue. While the witnesses highlighted that each of their respective institutions already voluntarily disclose a significant amount of information in this space, Scharf, Solomon, Fraser, and Dimon all emphasized the importance of considering consistency, what such disclosure is intended to accomplish, and how it is done for financial institutions versus other industries. Sen. Kevin Cramer (R-N.D.) also discussed climate-related items, emphasizing that the transition to lower emissions is an encompassing process that will require investments in fossil energy. 

Political and Shareholder Influence
Sen. Richard Shelby (R-Ala.) asked if political pressure should influence a bank’s decision to approve or deny crediting services or should such decisions be made in accordance with an impartial, risk-based analysis. Dimon said their decisions are risk-based and if the government chooses to pass a law, they will follow the law.

Sen. Steve Daines (R-Mont.) asked Moynihan if he or Bank of America has halted giving to police foundations as a result of pressure from shareholders. Moynihan said they have not changed anything in their funding based on shareholder pressures.

Sen. Thom Tillis (R-N.C.) called upon these companies to apply their political decisions and stances in a globally consistent manner, specifically citing the impact of the Chinese Communist Party’s National Security Law in Hong Kong as financial institutions continue to operate in that jurisdiction. Sen. Bill Hagerty (R-Tenn.) called on the witnesses to “keep politics out of finance” as such decisions could harm competitiveness and job loss for Americans in certain industries.

Housing
Sen. Jack Reed (D-R.I.) asked about what is being done to ensure forbearance continues. Moynihan said they will continue to work with the few clients left as the total amount of deferrals is down. Dimon said they have extensive programs in place to help people to avoid foreclosure.

Sen. Jon Tester (D-Mont.) asked if there is concern around increased housing prices and how the witnesses are equipped to respond “if the bubble pops.” Scharf said they have been conservative with how they underwrite and between their capital and loan loss reserves, he is confident in their position. Solomon said he does not see it as a bubble and noted that they have a small mortgage lending book. Fraser said it has to be monitored closely and it is too close to call it a bubble or not, adding that Citi has plenty of reserves on their balance sheet. Dimon said they have better mortgage underwriting than in 2008 and believes a pop would not have as severe of an effect but through their weekly stress tests, he is also confident in their position. Moynihan added that the stress tests assume housing prices drop while Gorman said it is not a bubble nationally and that the banks are extremely well capitalized to absorb such a shock.

Sen. Catherine Cortez Masto (D-Nev.) asked for the witnesses to outline their firms’ efforts to help individuals approaching foreclosure as a result of financial loss due to the COVID-19 pandemic. All of the witnesses outlined measures to address this issue including proactive outreach to at-risk borrowers beforehand and the offering of a variety of modification programs to help customers through these challenging times.

CDFIs & MDIs
Sen. Bob Menendez (D-N.J.) focused his questioning on increasing financial services access to LMI and underbanked communities. All the witnesses outlined their efforts to help these populations, including the offering of low cost or no fee initiatives, opening new branches, and injecting equity and loans into CDFIs and MDIs. Menendez emphasized that these firms have a responsibility to bring more people into the financial system and expand relationships with small businesses.

Van Hollen asked witnesses if they have recently made equity investments in CDFIs and MDIs. Dimon said JPMorgan has invested $70 million into nine of the 18 Black-run MDIs. Moynihan said Bank of America has taken five percent common equity positions in 17 MDIs and added that they have $120 million in deposits with MDIs. Scharf said Wells Fargo has invested $50 million in 13 MDIs and offers extensive financing to CDFIs. Fraser said Citi has contributed $50 million in equity to MDIs. Van Hollen asked witnesses if they would object to more frequent reporting on these kinds of investments and there were no objections.

Cortez Masto also discussed MDIs and CDFIs and the importance of these tools, but also noted that for states like Nevada, where there are no MDIs and only a single CDFI, there must be a more extensive effort to benefit underserved communities. Solomon and Fraser agreed, with Solomon highlighting Goldman’s $10 million pledged to close the racial wealth gap and Fraser noting the importance of affordable housing investments.

Inflation and Debt Concerns
Sen. Mike Rounds (R-S.D.) asked Dimon for an outlook on inflation. Dimon said they support what the government did early in the crisis, but unprecedented fiscal and monetary policy continues to be put in place. He continued that he expects the U.S. to have a strong economy this year and next, but that as the spending continues, it will certainly raise inflation. Dimon said there is nothing wrong with 1.6 percent, and whatever happens, they are always prepared for a response.

Shelby asked if there is concern about the growing federal debt and what impact an unsustainable level of debt has on our banking system. Dimon said it is not an immediate concern and believes the country has enough wealth, but said it will become an issue at some point and needs addressing sooner than later. Gorman said he is concerned about debt but that there are many ways to solve this. Gorman said there could be a level of debt that is unsustainable but added that the U.S. needs to return to its place of primacy first and foremost

Infrastructure Financing
Sen. Jon Ossoff (D-Ga.) asked how Congress can take action to make it easier for private sector entities to invest in necessary infrastructure improvements. All witnesses agreed that robust infrastructure is critical in terms of competitiveness as well as job growth. The witnesses also emphasized how impactful private capital can be in terms of modernizing infrastructure and how the government can encourage such investment.

Stock Buy Backs
Brown asked why Bank of America uses their money for stock buy backs rather than lending their money to small businesses and families. Moynihan said they can do both, return capital to shareholders at the same time as lending to small businesses. He said for the month of May, they made $1 billion in new commitments to small businesses, and that they have a $35 billion small business portfolio, the largest in the country. Moynihan said loans fell in the crisis because PPP had a tremendous impact on demand for their clients and caused less borrowing from their lines of credit.

Underwriting Decisions
Daines asked what non-economic criteria Wells Fargo takes into account when making loans. Scharf said their approach to underwriting is entirely risk-based whether it be credit risk, market risk, or reputational risk.

Diversity and Inclusion
In response to a question from Brown, Gorman emphasized that Morgan Stanley now has women serving as their CFO, the Co-Head of Banking, Co-Head of Asia, and many other positions, and said he is committed to diversity, adding that there is the possibility a woman could be the next CEO.

Menendez spoke to the importance of increasing board diversity, as well as diversity generally firmwide, and the business case for doing so. All witnesses agreed that this is a priority for their firms.

Consumer Loans Cap
Reed asked witnesses if they would support efforts to extend the 36 percent interest rate cap on consumer loans. All witnesses responded that they are committed to ensuring responsible access to credit and would further examine Reed’s legislative proposal in this space.

For more information on this hearing, please click here.