WASHINGTON — When the chief executives of eight of the nation's largest financial institutions travel to Capitol Hill to testify before a House panel Wednesday, tamping down growing public outrage will be among their goals.
It's clear the industry has lost support in Congress, where Sen. Claire McCaskill, D-Mo., recently branded bankers "a bunch of idiots." House Financial Services Committee Chairman Barney Frank, who will lead Wednesday's hearing, told reporters last week that he has bluntly conveyed the anger to executives.
"Here's the problem: People really hate you, and they are starting to hate us just for hanging out with you," the Massachusetts Democrat said. "And you have to help us deal with it. You have to avoid being stupid."
The industry's defensive position is quite a contrast to a century ago when J.P. Morgan was heralded for corralling fellow bankers to save the financial system after the Panic of 1907.
"I don't see a lot of leadership," said Cornelius Hurley, the director of the Morin Center for Banking and Financial Law at the Boston University School of Law. "That seems to be what's missing in this crisis."
It is not only the largest institutions that are feeling the pressure. On Thursday, Iowa lawmakers plan to grill bankers there whose institutions received money from the Troubled Asset Relief Program.
Jim Reichbach, who heads Deloitte & Touche USA LLP's banking practice, said bankers need a new strategy. "Are we at a time when riding out the storm isn't sufficient and even more dramatic action is going to be required?" he asked. "The answer is increasingly becoming yes."
Observers said CEOs have missed several opportunities to demonstrate leadership, starting with executive compensation, which is likely to be Topic A at Wednesday's hearing. President Obama made waves last week by capping pay at $500,000 for executives whose institutions receive extraordinary help from the government.
But bankers could have gotten out in front of the issue and volunteered to make dramatic cuts to their pay. "They shouldn't have allowed executive compensation to happen," said Robert Gnaizda, the general counsel of the Greenlining Institute. "They should have had some progressive proposal that the public would have accepted."
Though Citigroup Inc. CEO Vikram Pandit is expected to announce he has asked the board to reduce his salary to $1 a year with no bonus until the company becomes profitable, it may already be too late to show leadership in that area. At this point, to make a difference bankers would go have to go further and return bonuses they earned during the boom years.
"A truly responsible CEO could start that process and say, 'I took millions of dollars for those years. It didn't work out, so here's it back,' " Prof. Hurley said.
Another area ripe for industry leadership is the pricing of troubled assets clogging bank balance sheets. The government has struggled with the idea of creating a "bad bank" for lack of pricing data. But the situation might be different if industry leaders had led the way and helped to determine how to credibly price assets.
"The banks could actually market price these assets by essentially starting to do auctions," said Joshua Rosner, the managing director of the research firm Graham Fisher & Co.
Gil Schwartz, a partner in Schwartz & Ballen LLP, said bankers have to be careful to not collaborate on policy to the point.
"Antitrust laws are a powerful deterrent for people in the industry to get together to do things," he said.
But Prof. Hurley said antitrust laws are just cover for inaction by the banks. "That is more of an excuse for not doing anything," he said. "Even if they got together and said 'Here's the value,' it still doesn't create a buyer for those assets. It has to be tested in the market."
As the housing crisis deepened in late 2007 and 2008, banks also missed a change to engage in systematic loan modifications.
"We would not be in the mortgage crisis we are in today," if the banks had eased terms then, said Bruce Marks, the chief executive of the Neighborhood Assistance Corporation of America.
Even industry critics say that voluntary modification efforts have not proven effective.
Banks have made more of an effort in recent weeks to fight the negative perceptions from the financial crisis through public relations. Citi, JPMorgan Chase & Co., and Bank of America Corp. have published full-page ads in major national newspapers with promises to use Tarp money effectively and to play a part in reviving the economy.
The executives from other banks are expected to make similar pledges at the hearing on Wednesday. In addition to Citi, JPMorgan, and BofA, the top executives from Wells Fargo & Co., Bank of New York, State Street, Goldman Sachs, and Morgan Stanley are expected to testify.
Privately, sources named Richard Davis, the chief executive of U.S. Bancorp, and James Dimon, the chief executive of JPMorgan Chase, as the industry's most competent and effective leaders. Mr. Davis is credited with wise business decisions that have left U.S. Bancorp in a much stronger position than other big banks. Mr. Dimon has emerged as a spokesman of sorts for the industry.
Kenneth D. Lewis, the embattled leader at B of A, had been seen as another example of strong leadership. In a meeting convened last fall by former Treasury Secretary Henry Paulson to convince bank executives that they should accept government capital injections, Mr. Lewis was the first to speak up in support of the plan and ultimately persuaded other executives to join. But B of A's disastrous acquisition of Merrill Lynch & Co. Inc. has turned the tables; lately Mr. Lewis has faced demands for his resignation.
The executives are also taking pains to suggest they understand the extent of the nation's frustration. They are shunning private jets and drivers to travel to Washington this week in commercial airplanes and by Amtrak.
Still, Wednesday's hearing is likely to be ugly — and bankers know it. Privately, lobbyists said they have been prepping their CEOs for questions on executive compensation and how they have used Tarp money to lend. Mostly they are counseling them to keep their cool.
With so much outrage over the $700 billion financial bailout, witnesses are likely to be put on the spot with potentially embarrassing or hostile questions and comments. To prepare them, lobbyists are drilling their CEOs with questions the company figures committee members will ask, giving the CEOs the chance to practice fielding appropriate responses and controlling their tempers.
One trade group even created a chart laying out what individual committee members have said about executive compensation.
Even a good performance, however, is unlikely to reverse bankers' image anytime soon. "For many years, lawyers were at the bottom of the barrel," Mr. Schwartz said, "and I think it's safe to say that we've been displaced."