Bank CEOs grilled by Senate on pandemic response, ‘woke capitalism’

WASHINGTON — The CEOs of the six largest banks faced a grilling in the Senate on Wednesday, taking heat from Democrats over how they responded to businesses and consumers hurt by the pandemic, and from Republicans over their stances on hot-button issues like climate change and voting rights.

Appearing before the Senate Banking Committee, the six CEOs — Jane Fraser of Citigroup, Brian Moynihan of Bank of America, Charlie Scharf of Wells Fargo, Jamie Dimon of JPMorgan Chase, David Solomon of Goldman Sachs and James Gorman of Morgan Stanley — touted their efforts to address the economic impact of COVID-19 through the Paycheck Protection Program and loan payment flexibility. They also attempted to publicize their work to try to narrow the racial wealth gap through investments in minority communities.

“You’ve heard from all the CEOs here that we’re making an enormous effort to try to get credit to marginalized, lower- and middle-income, majority-minorities, Black small businesses, women of color, etc.,” Dimon said. “We’re doing a good job. We could always do more. We acknowledge there’s some problems that need to be fixed. We’re all trying to do it the right way.”

But the CEOs’ comments on efforts to help the economy weather the pandemic fell on deaf ears with some Democrats, who said small-business lending and relief efforts for struggling consumers were insufficient.

And they were criticized by Republicans over the efforts of some banks to scale back lending to fossil fuel companies, and for public statements on political debates that lawmakers said were outside the scope of banking.

Here are three takeaways from the CEOs’ Senate visit:

Democrats are not impressed by the banks’ pandemic relief efforts

While the CEOs touted their PPP lending, forbearance offered to consumers and fee waivers arising from the coronavirus pandemic, Democrats on the committee said they weren’t satisfied with banks’ work to help struggling families and consumers.

Sen. Elizabeth Warren, D-Mass., blasted Dimon because of overdraft fees that JPMorgan Chase still collected during the pandemic despite guidance from federal regulators last year encouraging banks to waive them.

“Your bank, JPMorgan, collects more than seven times as much money in overdraft fees per account than your competitors. … Nearly $1.5 billion that you collected from your customers” Warren said to Dimon. “You and your colleagues come in today to talk about how you stepped up and took care of customers during the pandemic and it’s a bunch of baloney.”

“You’ve heard from all the CEOs here that we’re making an enormous effort to try to get credit to marginalized, lower- and middle-income, majority-minorities, Black small businesses, women of color, etc.,” said JPMorgan Chase CEO Jamie Dimon.

Bloomberg News

Dimon said that JPMorgan Chase waived the fees for customers “upon request.” But when asked by Warren whether the bank would return overdraft fees to customers that it collected during the pandemic, Dimon said, “No.”

Senate Banking Committee Chairman Sherrod Brown, D-Ohio, said even though small businesses and families “have been desperate” for credit, “the amount of loans that your banks made has dropped.”

“Instead of lending, instead of putting money back into the economy, you’ve all said publicly, you plan to spend billions in buybacks in dividends,” he said.

Brown criticized BofA for engaging in capital distributions as lending activities declined during the pandemic.

“Your bank’s lending fell 14% over the last year,” Brown said. “You just announced $25 billion in stock buybacks. Why not lend that money to small businesses and families?”

Moynihan defended his bank’s stock buybacks and said part of the reason that lending declined is that the PPP accounted for a substantial amount of the bank’s activities.

“We can return capital or shareholders to help them enhance our returns and at the same time lend to small businesses,” Moynihan said. “PPP had a tremendous impact on demand for our clients and as we did $35 billion of PPP loans, that obviously caused less borrowing from our lines of credit to small businesses.”

Republicans are concerned about ‘woke capitalism’ in the financial sector

Republicans sounded the alarm about potential political motivations behind the financial industry’s decisions to weigh in on issues like voting rights and climate change.

“‘Woke capitalism’ seems to be running amok throughout the financial institutions of our country,” said Sen. Tim Scott, R-S.C.

Sen. Pat Toomey, R-Pa., the committee’s ranking member, said he was worried that banks face pressure “to embrace ‘wokeism’ and appease the far left’s attacks on capitalism.”

“I worry that continuing down this path may lead to distorted credit allocation, activists seeking to make political change through the financial system instead of the democratic process, and ultimately, diminished prosperity for Americans,” he said.

Scott called out BofA, Wells Fargo, and Goldman Sachs for signing onto a letter in April from major corporations denouncing a Georgia elections law that opponents say will restrict access to voting and discriminates against minorities. JPMorgan and Citigroup have also opposed the measure.

Moynihan said some employees expressed “grave concern” when the controversial law was passed.

“Our company signed onto that letter based on input from our [Environmental, Social, and Corporate Governance] committee and our teammates about how they felt when the law came in,” Moynihan said. “In our view as a company, we believe that there ought to be a concerted effort to get to a set of standards we can all agree to because … the access for people who are eligible to vote is paramount to having a great democracy.”

But when Scott asked the CEOs to name provisions of the Georgia law that were in fact discriminatory, none of the witnesses had a response.

“I find it to be disheartening as a former member of some of the institutions, as an account holder and a member of others, why it is that you all have taken such a strong, clear position, but can’t or won’t articulate the reason for that position,” Scott said.

Toomey said some of the CEOs had embraced what he called “stakeholder capitalism” that put social issues ahead of the business of banking.

Central to the line of questioning was a recent stance by banks on lending to oil, gas and coal companies. The six banks have announced plans in recent months to reach net-zero emissions in their financing businesses by 2050.

Toomey pressed Fraser on whether Citi would formally block fossil fuel companies from receiving credit. Fraser said that the bank was acknowledging the very real risk of climate change.

“We don’t plan to have a prohibition against this, no,” Fraser said. “We plan to help our clients in the transition to the cleaner carbon technologies.”

Fraser faced similar questions later in the hearing from Sen. Kevin Cramer, R-N.D., and defended the underwriting process around whether to lend to fossil fuel companies in particular.

“We see declining demand,” Fraser said of the coal industry. “We also take into account reputation and other risk factors when we make a decision as to where we’re going to be financing or not.”

The Republican line of questioning was met with some pushback from Democrats who viewed the banks as important actors on certain issues, especially regarding the environment.

Democrats urged the industry to get behind disclosures for investors on climate change risks in the financial industry.

“This isn’t about being woke,” said Sen. Tina Smith, D-Minn. “This is about providing individual investors with the information that they want in a clear and understandable way.”

In response to questioning from Smith, Dimon said he is open to new climate disclosure requirements.

“We make a tremendous amount of disclosures already in ESG, so we’re not against it,” Dimon said. “We’re in favor of that kind of thing. … Our 10-K is already 400 pages long and most people don’t read that. … You got to be very, very thoughtful about what it is you’re trying to accomplish and how it’s not just done for banks but is done for other critical industries in the right way to accomplish the goals you actually want to have.”

The bankers tried to tout investments in minority communities and diversity efforts

Several CEOs used their opening remarks at the hearing to discuss their recent investments in Community Development Financial Institutions and Minority Depository Institutions during the pandemic.

“Recognizing that the goal of the PPP was to provide a lifeline to struggling small businesses, we also took the more than $400 million in fees generated by the program in 2020 and are donating them to our ‘Open for Business Fund,’ which is allowing us to engage CFDI’s, not-for-profits and others,” Scharf said.

While Goldman Sachs was not a PPP lender, Solomon said that the bank committed funds to CDFIs and MDIs to help mitigate the impact of the pandemic.

“We are not an SBA lender, so we did not participate directly in the Paycheck Protection Program,” Solomon said. “Instead we committed $1.25 billion in capital to Community Development Financial Institutions and mission-driven lenders who facilitated PPP loans across the country.”

While bankers discussed their efforts to reach underserved communities during the pandemic, lawmakers continued to press them to ensure that their boards and executive leadership are sufficiently diverse.

Brown pressed Gorman on why he did not raise his hand at a 2019 hearing when he was asked if a woman or a person of color would succeed him as CEO.

“You were one of only two CEOs who didn’t believe there would be a woman or person of color leading your bank in the next decade?” Brown said. “Don’t you have a responsibility to do something about that?”

Gorman said that Morgan Stanley has since placed several women in executive leadership positions that could put them on track to becoming CEO.

“We’ve since installed a woman as our CFO,” Gorman said. “We have a woman who is co-head of banking. We have a woman co-head of Asia. We have a woman who is head of all of Europe, Middle East and Africa. Our chief audit officer is a woman. Our vice chairman covering sustainability is a woman. And six of my 13 direct reports are people of diversity.”

The CEOs were asked whether they would support a more formal requirement to disclose their progress on diversity in hiring practices. NASDAQ proposed in December to require all companies listing with the exchange to publicly disclose diversity statistics of their boards of directors.

“Do you all believe in the public disclosure of your companies in terms of diversity on corporate boards and senior executive management?” said Sen. Bob Menendez, D-N.J.

All of the CEOs said, “Yes.”

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