A viewer's guide to this week's big bank congressional hearings

September 20, 2022 11:44 AM

WASHINGTON — Viewers can expect a raucous pair of hearings this week as lawmakers across the political spectrum prepare to grill the CEOs of the country's largest banks.

In two separate hearings scheduled for Wednesday and Thursday of this week, seven bank CEOs will appear before Congress. This year, the leaders of America's largest Wall Street banks — JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo — will be joined by some of the country's largest regional banks for the first time: U.S. Bancorp, Truist Financial, and PNC Financial.

The House Financial Services Committee will get the first crack at the bankers with its Wednesday hearing led by Chair Maxine Waters, D-Calif, who first convened the now-annual affair for the first time in 2019. On Thursday, the action will shift to the Senate Banking Committee, led by Chair Sherrod Brown, D-Ohio.

The megabank CEO hearings have not historically had much of an impact on policy or legislation. But this year's hearing comes at a perilous time for the U.S. economy and broader political landscape. Inflation remains stubbornly and historically high, and supply chain disruptions still persist in the wake of COVID-19 and the war in Ukraine — all with fewer than 50 days until the 2022 midterm elections.

Even beyond high-level politics, however, the CEOs — including Jamie Dimon of JPMorgan, Jane Fraser of Citigroup, Brian Moynihan of BOFA, Charlie Scharf of Wells Fargo, William Rogers Jr. of Truist, William Demchak of PNC, and Andy Cecere of U.S. Bank — are expected to face a complicated minefield of topics on financial policy.

Democratic lawmakers will almost certainly press the CEOs on consumer affairs ranging from the reform of overdraft fees to fake accounts scandals. Republicans, meanwhile, will grill the bank leaders on the politicization of finance and the proper role of climate risk management within their institutions.

What follows is a topic-by-topic viewer's guide for this week's hearings.

A Grocery Store As U.S. Inflation-Adjusted Consumer Spending Unexpectedly Rose In March

Inflation spurred by supply chain problems and other factors has been hitting consumers for the better part of a year and is likely to be a hot topic for bank CEOs as they testify on Capitol Hill this week.

Bloomberg News

Economic turbulence

Persistently high annual inflation rates — currently over 8% — and the looming risks of recession may put the health of the nation's banks front and center during this week's hearings. But even against the backdrop of deep market uncertainty, expect the CEOs to tout the relative stability and strong levels of capital at their financial institutions, particularly in the wake of the early pandemic's economic disruption.

In his prepared remarks released Tuesday, Dimon said that increasing capital requirements for his and similarly-situated banks represents not only an overabundance of caution but a source of risk to the financial system, particularly in a rising interest rate environment.

"The continued upward trajectory of regulatory capital requirements on America's already fortified largest banks, particularly when not reflective of actual risk, is itself becoming a significant economic risk," Dimon said.

In recent months, bank profits have taken a dip in response to rising interest rates and broader geopolitical risks. But that slowdown remains trivial compared to the carnage seen in crypto markets over the last several months. The broader fintech sector has also been hit with layoffs throughout 2022, including the buy now, pay later firm Klarna, retail trading app Robinhood, along with several crypto companies — Coinbase, Gemini, and BlockFi have all made significant cuts to their workforce.

But the bank CEOs might have bigger concerns lurking among the Biden administration's regulators: Michael Barr, the recently confirmed Fed vice chair for supervision, announced last week that he would explore changes to the rules that outline banks' capital requirements. Under a Democratic administration, analysts generally expect capital rules to become stricter for all but the smallest banks.

The CEOs representing regional banks on Capitol Hill this week face the highest stakes: Biden regulators have repeatedly stressed the potential systemic risks of a large regional bank failure, and the Wall Street Journal reported on Sunday that some federal regulators were considering the extension of long-term debt rules that have historically only implied to the most systemically important banks.

Consumer issues

It's been a busy few years for consumer policy in and around the banking system. Much of that has been prompted either directly or indirectly by Rohit Chopra, the pugilistic director of the Consumer Financial Protection Bureau.

Chopra has pressured banks to rethink their overdraft programs, rethink their approach to credit card late fees, and more. Democrats on both banking-focused committees are expected to press the bank CEOs on the progress they've made around those key issues. Many large national banks have made significant changes to their overdraft programs over the past two years, but lawmakers have been increasingly frustrated with peer-to-peer payments fraud on the bank-owned platform Zelle.

Viewers can also expect a familiar — if fraught — topic to make an appearance during this week's hearings: fake account scandals. And while Wells Fargo's sham accounts catapulted the megabank to a level of notoriety not seen since the darkest days of the financial crisis, two other banks represented on the Hill this week will likely face questions of their own on the topic. U.S. Bank was fined nearly $40 million by the CFPB in late July for opening accounts without customers' knowledge, later prompting a letter from Senate Banking Chair Brown. And just last week, the Capitol Forum reported that regulators may soon hit Bank of America for a fake account scandal of its own in a probe allegedly dating back to the Obama administration.

Political risk and social policy

Bankers haven't expected much public affection from either political party in recent years, but the CEOs assembled this week may find themselves in a tougher position than normal. They'll be wedged between GOP lawmakers expected to attack banks' perceived social positions, ranging from ESG investing to support for female employees' women's reproductive health. Democrats, meanwhile, will push banks to take on a bigger role in combating structural racism as well as address the risks of climate change in the financial system.

Republicans at the state level have moved with particular aggression to curtail bank involvement in climate-friendly initiatives. State officials in Texas and West Virginia, for instance, have banned some banks and other financial institutions from picking up state contracts and participating in municipal financing, accusing institutions of being biased against oil and energy companies. Among this week's Capitol Hill visitors, West Virginia banned JPMorgan and Wells Fargo for "boycotting" fossil fuel companies, which the banks deny.

But the CEOs will also face tough questioning from Democrats on social policy, particularly around climate risk management as well as the racial justice commitments many banks introduced in the years and months after 2020's protests following the murder of George Floyd in Minneapolis. The CEOs may also be pressed on their institution's historical relationship to and profits from chattel slavery, something that House Democrats in particular have zeroed in on in the last few years.

The future of banking

One of the less contentious areas of questioning for the CEOs this week could revolve around emerging technologies and the role of financial innovation in the banking system. Congress has considered a new regulatory framework for stablecoins for months, and while lawmakers appear to have moved away from the regulator recommendation that stablecoin issuance be limited to banks, it remains clear that traditional financial institutions will play a prominent role in integrating that type of technology into the banking system — eventually.

On broader topics, the CEOs may also field questions about a future central bank digital currency, otherwise known as a digital dollar. Many Democrats currently favor the introduction of a CBDC to broaden financial inclusion, while many Republicans have been more skeptical, arguing that private stablecoins could fill the same role without handing the government a much larger role in the financial system. Banks are even more leery of CBDCs, as a digital dollar could undercut a significant source of their funding: customer deposits.