"Megabank" CEOs Update HFSC on Current Practices, Programs and Policies

Daniel Meade Commentary by Daniel Meade

The U.S. House Financial Services Committee ("HFSC") heard testimony from the CEOs of U.S. global systemically important banks ("G-SIBs") on "trends and developments in the industry since the 2008 global financial crisis." (See Committee on Financial Services Majority Staff Memo.)

The hearing, titled "Holding Megabanks Accountable: An Update on Banking Practices, Programs and Policies," included the following witnesses:

  • Mr. Jamie Dimon, Chair and CEO of JPMorgan Chase & Co., who recommended addressing racial and economic inequalities in the small business landscape by, among other things, increasing (i) resources for the Small Business Administration Microloan program and (ii) the Treasury Department's Community Development Financial Institution ("CDFI") Fund to $1 billion, "with a set-aside for Black-led CDFIs."

  • Ms. Jane Fraser, CEO of Citigroup, who testified that the firm's priorities are (i) financial inclusion during the COVID-19 recovery through partnerships with CDFIs and Minority Depository Institutions, (ii) improving its risk and controls infrastructure, and (iii) monitoring the digital asset space and the use of distributed ledger technology.

  • Mr. James P. Gorman, Chair and CEO of Morgan Stanley, who provided Committee Chair Maxine Waters with requested information on 14 topics, including the firm's (i) size and complexity, (ii) approach to reaching unbanked individuals, (iii) capital market activities, (iv) compensation and clawback policies, (v) diversity among its high-level executives and (vi) approach to cybersecurity, emerging technology and climate risk.

  • Mr. Brian T. Moynihan, Chair and CEO of Bank of America, who testified that the firm intends to continue its policy of "Responsible Growth," which focuses in part on both risk management and sustainability, and who described recent developments in branch networks, digital banking, emerging technology, cybersecurity, and diversity and inclusion.

  • Mr. Charles W. Scharf, CEO and President of Wells Fargo & Company, who testified as to the firm's organizational changes, including its (i) "flatter" organizational structure and (ii) plan to scale back and simplify the company.

  • Mr. David M. Solomon, Chair and CEO of Goldman Sachs, who testified that the firm remains well capitalized and has reduced its complexity. Mr. Solomon also applauded Congress's decision to provide for a $15 billion set-aside for CDFIs, which Goldman Sachs responded to by providing an additional $500 million to CDFI partners to fund Paycheck Protection Program loans in 2021.

Among other issues, Democrats questioned the CEOs on overdraft fees, and asked whether the institutions were being fair to consumers. CEOs responded with examples of the accounts their institutions offered that do not have overdraft fees or that offer more ways that overdraft fees can be avoided. Some CEOs also noted that they continue to look for ways to do better and be more consumer-friendly. Republicans on the committee questioned the need for the hearing at this time, but then cautioned the institutions represented on the panel about their efforts on politically sensitive issues like carbon neutrality and climate change.

The Committee's staff memo included the following proposed or to-be-introduced pieces of legislation:

  • H.R. ___, the "Consumer Abuse Remediation Enhancement Act," which would require megabanks to pay damages within 30 days of identifying "extensive consumer abuse," defined as a violation that (i) affects more than 50,000 consumers or (ii) results in the loss of more than $10 million;

  • H.R. ___, the "Disclose Megabank Ratings Act," which would require megabanks to (i) disclose their Consumer Compliance ratings and (ii) disclose, no later than two years after an exam, ratings such as those for capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk (or "CAMELS");

  • H.R. ___, the "Expanding Financial Access for Underserved Communities Act," which would amend the Federal Credit Union Act to (i) permit credit unions to serve underserved areas and (ii) define an "underserved area";

  • H.R. ___, the "Greater Supervision in Banking Act of 2021," which would require the G-SIB holding companies to provide annual reports to the Federal Reserve Board ("FRB");

  • H.R. ___, the "Holding Megabanks Accountable Act," which would require the FRB, the FDIC, the OCC and the CFPB to design a "strategic plan to hold megabanks accountable" when a G-SIB holding company engages in a "pattern of compliance failures";

  • H.R. ___, the "Megabank Board Standards Act," which would (i) require megabanks to have "qualified" directors (i.e., those with "relevant and current banking or regulatory experience") and (ii) limit the number of boards on which a megabank director can serve; and

  • H.R. ___, the "Municipal IDs Acceptance Act," which would require the FRB, the FDIC, FinCEN, the National Credit Union Administration, the OCC and Treasury to update guidance regarding customers' use of municipality issued identification cards.

Commentary

Daniel Meade

This HFSC hearing was notable for at least two reasons. First, the tone of the hearing was not as combative (though not without some criticism of the "megabanks") as has been the case for some of these hearings amongst the "megabank" CEOS in the past ten or twelve years. This may reflect the value these institutions (along with much of the rest of the banking industry) have provided in being the conduits for programs such as the Paycheck Protection Program and other assistance or forbearance they have been able to give during the pandemic. Second, this is the first instance of gender diversity brought to the panel by Citigroup's CEO Jane Fraser, the first woman CEO of a "megabank."

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