A decade after the financial crisis, the biggest U.S. banks have grown even larger, and lawmakers have yet to resolve a fight on whether size equates to risk.
Firms from JPMorgan Chase to Bank of America and Citigroup have all been described as too big to fail, Rep. Al Green reflected during a House Financial Services committee hearing Wednesday with the CEOs of seven banks deemed large enough to threaten the U.S. financial system if they collapse.
That, the Texas Democrat said, “begs the question, ‘Are they the right size to regulate or the right size to downsize?'”
It was a question committee members couldn’t answer during the hearing, the first with executives from the so-called systemically important banks — which hold combined assets of $11 trillion — since Democrats regained control of the House of the Representatives in November’s midterm elections. The session instead served to highlight the partisan divide over Wall Street that has lingered since September 2008, when years of speculation and risky loans led to the failure of Lehman Brothers, the fourth-largest U.S. investment bank.
Lehman’s liquidation froze credit markets and forced the government to pour billions into bailouts for large institutions. Two months later, irate taxpayers who blamed GOP President George W. Bush’s looser regulation over the previous seven years for their loss of jobs, homes, and retirement savings, helped propel then-Democratic Sen. Barack Obama into the White House.
“I’m concerned that several of these institutions are too big to manage their own operations, too big to serve our communities and too big to care about the harm they have caused,” said Chairwoman Maxine Waters. The California Democrat, who opened Wednesday’s hearing by listing billions of dollars in fines the companies have paid in the past 10 years, also took the opportunity to lambaste the Trump administration’s loosening of regulations on Wall Street as well as a GOP tax overhaul that gave the firms a windfall while shrinking the size of refunds for individual taxpayers.
“While an estimated 4.6 million hardworking Americans are seeing their refunds reduced dramatically and another 4.6 million find themselves now owing money to the IRS when they file their 2018 taxes, the largest banks have seen a windfall of $14 billion,” she said.
That’s not likely to help Wall Street’s standing with the American public. The industry’s net-favorable rating of 21 percent as of May 2017 ranked below Congress, at 23 percent, and used car dealers, at 26 percent, according to an online survey by the libertarian Cato Institute.
But the panel’s top Republican, Rep. Patrick McHenry of North Carolina, responded that the entire session was a “hearing in search of a headline,” unlike the grilling of Wells Fargo CEO Tim Sloan before he abruptly stepped down last month.
“That organization,” which wasn’t represented on Wednesday, “has been through two chief executives in just over two years time,” McHenry said, and the hearing that examined claims of customer exploitation that led to billions of dollars in fines “had legislative intent. It was important.”
The heads of the banks testifying on Wednesday, he said, were called before Congress based simply on their size.
“I fear my colleagues on the other side of the aisle are here to attack our economic system, attack the nature of our market,” he said. The CEOs, for their part, said the industry has learned the lessons of the crisis.
It “was a searing experience for our firm,” said Citigroup CEO Michael Corbat, whose company accepted a $45 billion bailout. “We greatly appreciated the assistance from the U.S. taxpayer. We were fortunate to be able to repay those debts with significant returns for the taxpayer, and that experience has made it a mission for us never to be in that position again. Since the crisis, Citi has become a stronger, safer, and far less complex institution.”
