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House Financial Services Committee Hearing on the Global Systemically Important Banks

House Financial Services Committee

“Holding Megabanks Accountable: A Review of Global Systemically

Important Banks 10 years after the Financial Crisis”

Wednesday, April 10, 2019

Key Topics & Takeaways

  • Capital Requirements: Rep. Blaine Luetkemeyer (R-Mo.) questioned the Fed’s proposed enhanced supplemental leverage ratio (eSLR), noting there are claims it will lower capital levels by $121 billion and asked if this figure is accurate, noting that it does not account for capital at the holding company level. O’Hanley replied that $121 billion is not accurate and that eSLR would reduce their capital by less than five percent. Corbat agreed that the figure is not accurate, adding that the Fed’s calculation has different types of capital being calculated and that the eSLR “isn’t a binding constraint,” but that Comprehensive Capital Analysis and Review (CCAR) capital is. Solomon echoed Luetkeyemer’s comment that it does not take into account holding company capital.
  • Diversity and Inclusion: Rep. Joyce Beatty (D-Ohio) asked about diversity, requesting that each witness commit in writing and report back to her as Chairwoman of the D&I Subcommittee to creating a Director of Minority and Women Inclusion that would report directly to them. The witnesses agreed to look into creating or restructuring current positions to facilitate this. She asked if they have minority firms managing their assets, and the firms that are in that business answered yes.
  • Brexit: McHenry asked Corbat and Scharf how their banks are planning for the risks posed by Brexit and if a no-deal Brexit could lead to systemic risk. Corbat said they have plans in place, such as relocating their bank out of the UK to Ireland, moving a portion of their broker dealer to Germany, and moved necessary employees outside the UK. Regarding a no-deal Brexit, he responded that there is a challenge posed but he does not see systemic risk. Scharf said they have been planning for a hard Brexit by moving a series of activities to their bank in Belgium and have moved away control functions from the UK, adding that they are closely moving client transactions away. Dimon said JP Morgan Chase is prepared for Brexit, but does not know all the potential outcomes.

Witness

Opening Statements

Rep. Maxine Waters (D-Calif.), Chairwoman

In her opening statement, Waters said the hearing would address banking practices and lessons learned ten years after the financial crisis. She noted the global systemically important banks (G-SIBs) have paid many fines since the crisis, including for consumer abuses and other violations of the law, but have treated those fines as “simply the cost of doing business.” Waters said the G-SIBs have brought in “massive profits” and should not be “rewarded” for bad behavior. Waters said while the “tax scam” has resulted in Americans seeing their tax refunds reduce dramatically, large banks have seen a tax “windfall.” Waters also said the administration is deregulating the “megabanks” by reducing bank capital standards, easing stress testing requirements, and weakening the Volcker rule, calling them “misguided actions.”

Rep. Patrick McHenry (R-N.C.), Ranking Member

In his opening statement, McHenry called it a “hearing in search of a headline,” adding that the witnesses were invited solely due to the size of their banks. McHenry said Dodd-Frank imposed a “massive” regulatory regime, including about 400 new regulations. He explained that since the crisis, the economy has grown, banks hold more capital than they did pre-crisis, the labor market is strong, and the U.S. added nearly 200,000 jobs in March. McHenry expressed his concern that the hearing was intended to attack the economic system, the nature of the market, and dictate social and environmental policy through a government mandate on banks, calling this the “wrong approach.” McHenry called for hearings on critical issues that could pose systemic risk to the system, including Brexit, Chinese debt, and the slowing of the global economy.

Rep. Andy Barr (R-Ky.)

In his opening statement, Barr said the hearing was an opportunity for the witnesses to identify what they see as the most significant risks to the financial system and how their firms are proactively mitigating those risks. Barr said he does not believe the size of the firms alone pose a threat to the financial system, especially considering that the system is so much better capitalized, has more liquidity, and is better able to recognize and manage risks. He called on the witnesses to address the risks to the system identified by the Financial Stability Oversight Council (FSOC), including cybersecurity, Brexit and regulatory overlap. He also called on witnesses to address how they are resisting calls to de-risk and cut off financial services to certain small businesses and industries.

Testimony

Michael L. Corbat, CEO, Citigroup

In his testimony, Corbat said that it is Citigroup’s mission to never have taxpayers “on the hook” again, and that since the financial crisis they have become a smaller, safer, stronger, and less complex institution, transforming control of their risk, auditing and compliance. He noted that Citi has “gone back to [its] roots” and now operates two primary lines of business, its consumer bank and its institutional clients group. As the most global of the banks on the panel, Corbat stated that Citi provides its clients with an American institution to compete globally rather than having to rely on a “mix of foreign banks.” He continued that while restructuring the organization was the “easy part,” rebuilding trust “is much harder than rebuilding the balance sheet,” explaining that the firm has invested in culture and that ethics is now its foundation. Corbat continued that Citi has invested $26 billion in infrastructure over the past year, to include housing and community development projects, adding that they are proud to be the leading affordable housing lender in the country. Regarding the 25 percent of Americans who are unbanked or underbanked, he explained that Citi launched an account in 2014 that has low or avoidable monthly charges and no overdraft fees, adding that this is one of its fastest growing products.

James Dimon, CEO and Chairman, JP Morgan Chase & Co.

In his testimony, Dimon said JP Morgan Chase works every day to earn the trust of its customers and the communities it serves, noting that it must never lose sight of the lessons learned during the financial crisis. Dimon said regulations imposed after the crisis have addressed many of the key concerns and the industry owes a debt of gratitude to the policymakers who stepped in, saying the most important reforms made were those related to capital, liquidity, and resolution recovery. Dimon said that now, even under the most extreme stress testing scenario, the combined losses are only six percent of capital, and resolution planning has provided a credible framework for unwinding a large bank, ensuring that a Lehman Brothers-like collapse cannot happen again. Dimon said it is important to consider new threats to the financial system such as nonbank mortgage lenders and other issues, such as anti-money laundering (AML), the Bank Secrecy Act (BSA), cybersecurity, privacy, and global competitiveness. He noted a number of initiatives the company has undertaken to support its workforce, including raising its entry-level wage, subsidizing more than 90 percent of medical costs for employees making under $60,000, focusing on diversity strategies for retention, and identifying ways to meaningfully help people and communities, such as its Advancing Cities initiative.

James P. Gorman, CEO and Chairman, Morgan Stanley

In his testimony, Gorman said that the financial crisis was the “most significant event” in the firm’s history, stressing that they are working hard to ensure the institution does not go through that again. He continued that 10 years ago, the firm went through remodeling to support its clients, employees, shareholders and communities, adding that the Dodd-Frank Act stress tests, resolution planning and living will process has made the firm stronger. Gorman stated that Morgan Stanley is a safer, sounder, and more resilient firm than it was before the crisis, with annual capital increases, increasing liquidity, and shrinking its balance sheet and leverage. He continued that employees are acting with “the right values,” adding that having diverse employees and leadership is “critical” and that there is still “significant work to do” to achieve diversity goals. Gorman stressed that the company’s focus on executing clear strategy, sound financial footing and a living culture committed to the right values “is the heart” of the firm today.

Brian T. Moynihan, CEO and Chairman, Bank of America

In his testimony, Moynihan said that when he took the helm of Bank of America in 2010, it was important to acknowledge the damage done by the decisions made by his predecessors pre-financial crisis as well as support the work of Congress and regulators to address this damage. He said in 2010, Bank of America put together a team committed to changing the company, focused on cleaning up the mess created by the financial crisis, transforming and simplifying the company, and creating a simplified model to serve clients, manage risk, focus on stability, transparency, and fairness. Moynihan said the firm’s balance sheet is 20 percent smaller than it was pre-crisis, it has added $100 billion in capital and $300 billion in liquidity, as well as increased loans to consumers, small business, and middle markets companies by 35 percent. Moynihan said Bank of America is focused on responsible growth that is customer-focused, within risk parameters, and sustainable. Moynihan also mentioned Bank of America’s Environmental, Social, and Governance (ESG) priorities, including environmental business initiatives, corporate charity, employee volunteering, community development lending, and corporate diversity.

Ronald P. O’Hanley, CEO and President, State Street Corporation

In his testimony, O’Hanley explained that State Street is different from the other firms because it does not serve retail customers with traditional or retail banking and therefore does not encounter consumer-focused issues, but it does help investors who are saving for events such as retirement, a home, or college. O’Hanley explained that the firm provides investors foreign exchange, brokerage and other agency trading services, as well as securities finance. He stressed that the U.S. financial system is safer and more resilient due to strengthened regulations and transparency, as well as “bold” moves by Congress. O’Hanley noted that due to being designated as a global systemically important bank (G-SIB), it is subject to the highest levels of supervision regulations and takes compliance “very seriously,” noting that its post-crisis capital and holdings have more than doubled, adding that it has the most stringent stress tests and resolution regimes. Regarding lessons learned from the financial crisis, he stated the need to strengthen the risk management system from the top down, with better transparency regarding enterprise-wide risk. He highlighted their focus on Board quality and diversity, as well as whether ESG risks have been considered, noting that there is a need “to do more to gain trust” after the crisis.

Charles W. Scharf, CEO and Chairman, Bank of New York Mellon

In his testimony, Scharf explained that Bank of New York Mellon is a custody bank which carries out the “nuts and bolts” of the administrative functions of the financial system, operating as a processing company and recordkeeper. He explained that the bank provides custody and other operational services to governments, endowments, mutual funds, and other institutional customers, and plays a specialized role in the global financial system. He said that since the financial crisis, regulatory efforts have helped stabilize markets and made the system stronger, but pointed out there is always a need to reevaluate and recalibrate regulations to address emerging risks. Scharf said his bank is financially sound and they have worked to simplify operations, enhance compliance and ethics processes, and regularly assess and upgrade their cybersecurity infrastructure. Scharf said that although they do not have direct contact with individual consumers, Bank of New York Mellon is committed to serving communities, investing in its employees, and is proud of its diverse workforce.

David M. Solomon, CEO and Chairman, Goldman Sachs

In his testimony, Solomon noted that the financial system is safer and more resilient today, with increased capital and reduced leverage and holding of illiquid assets. He continued that Goldman’s equity has more than doubled, leverage has decreased, and liquidity has more than tripled, noting that Goldman Sachs is able to handle substantial shocks and its stress tests have confirmed this. Solomon stated that Dodd-Frank made the financial system safer and that the firm has adopted those regulations, but that it is also appropriate to see if improvements can be made to avoid duplication and undue costs on clients. Regarding enhancements Goldman Sachs has made since the crisis, he explained that it conducted a three-year review of its business standards and practices, implementing a number of changes to include conflicts of interest, and that the firm is more self-aware and open to change, adding that it has learned from past experiences. Solomon stressed that Goldman is motivated to make “real change” to improve its diversity, with long-term goals at all levels of the firm, holding management accountable for these changes.

Question & Answer

Systemic Risk

In response to a question from Rep. Steve Stivers (R-Ohio) on the biggest risks to the financial system, Corbat replied it was “the ability to talk themselves into the next recession.” Dimon replied with cybersecurity and the growing nonbank sector, adding that while not systemic yet, it should be closely monitored. Gorman stated that global growth is slowing and will have an impact on the ability to service credit around the world. Moynihan replied with cybersecurity and nonbanks “not being under the tent.” O’Hanley and Scharf said cybersecurity and slow global growth. Solomon said cybersecurity and the difficulties in the relationship between the U.S. and China.

Rep. Jim Himes (D-Conn.) asked what product financing mechanism or market is generating systemic risk. Corbat said lot of people have mentioned leveraged lending and what it has done, but he does not think it is a systemic risk today because it is being regulated outside the regulated financial system. Dimon said leveraged lending and student lending which are growing and deteriorating rapidly. Gorman said international markets, as the slowing of the global economy will rise credit risks, and credit in the corporate sector is large by historical standards, adding that he does not think it is dangerous but should be watched. Moynihan said a lot has been learned from the crisis about leverage and student lending on the personal side, and leveraged finance from the corporate side. He said capital standards are tested under the worst scenario and this is the purpose of stress testing. O’Hanley said he believes it is student loans and anything pushing activity into the shadow banking system, to which Scharf agreed. Solomon said the growth in shadow banking system is not yet a systemic risk and that there have been significant changes in market structures that have not been tested.

Hollingsworth also talked about systemic risk and shadow banking and asked to point out specific regulations or legal liability having led to unintended unregulated financial institutions. Corbat said two specific examples are auto and mortgage lending. Dimon said the capital requirement calibration issue is important. Gorman said as consumer finance grows, liquidity requirements on regulated versus unregulated institutions should be an area of focus. Moynihan recommended to read reports from the Federal Advisory Council that cover larger areas of concern that “squeeze out” small institutions. O’Hanley and Scharf noted that the payments area is a space where there is an uneven playing field.

Rep. Stephen Lynch (D-Mass.) asked how to diminish or mitigate the threat of systemic risk in shadow banking while balancing the need for innovation. Moynihan said the risks of shadow banking are overlending and the payment systems. O’Hanley said there is a need to recognize that some of the best innovators in the world are the institutions represented at the hearing, but they are held to a different standard than financial technology (fintech) firms are. Dimon added that shadow banking activities need to be monitored as they could “cause an issue” if something goes wrong.

Capital Requirements

Rep. Blaine Luetkemeyer (R-Mo.) questioned the Fed’s proposed enhanced supplemental leverage ratio (eSLR), noting there are claims it will lower capital levels by $121 billion and asked if this figure is accurate, noting that it does not account for capital at the holding company level. O’Hanley replied that $121 billion is not accurate and that eSLR would reduce their capital by less than five percent. Corbat agreed that the figure is not accurate, adding that the Fed’s calculation has different types of capital being calculated and that the eSLR “isn’t a binding constraint,” but that Comprehensive Capital Analysis and Review (CCAR) capital is. Solomon echoed Luetkeyemer’s comment that it does not take into account holding company capital.

Rep. Ted Budd (R-N.C.) said strong capital requirements are critical but that “capital is not free,” asking the panel how capital requirements affect decision making and how they would more effectively allocate capital if requirements were recalibrated. Corbat said when allocating capital they are mindful of risks, and a “skew” in the data might lead to taking fewer risks which impacts lending, new business ventures, and could inhibit growth. Dimon said there is excess capital and requirements could be changed in a way that makes the system safer and does not affect systemic risk, but also frees up capital for more mortgages and small business loans. Moynihan pointed out that the difference between a ten percent and nine percent requirement would be the difference in $140 billion in lending that could be made.

Rep. Trey Hollingsworth (R-Ind.) asked how the U.S. financial system having excess capital requirements disadvantages the U.S. globally. Dimon said the calibration issue is a problem and it is not about concerns of excess capital requirement today, but that at some point it will be a disadvantage for the U.S.

Rep. Alexandria Ocasio-Cortez (D-NY) asked if now is the right time for the Federal Reserve to build more capital to weather a future downturn. Corbat said the Fed is measuring 23 or 24 types of capital, including the counter cyclical buffer and should holistically address the right solution.

Rep. Earl Perlmutter (D-Colo.) noted that while he is willing to meet with the witnesses to discuss where they believe capital is double or triple counted, he will be a “hard sell to chip away” at capital during good times, knowing there will eventually be bad times.

Necessity of G-SIBs

Barr asked the witnesses to describe the U.S. and global economies if their institutions did not exist or were forcibly broken up. Corbat said the global economy would be a “very different place,” as they are actively engaged with and finance U.S. companies around the world who would have to turn to foreign banks where the playing field is “not necessarily level.” Dimon said JP Morgan moves trillions of dollars around the world for their clients, which would have to be done by other large banks or foreign banks if it did not exist, adding that a country without a large banking system would not have a strong economy and would have weaker competitiveness. Moynihan said the success of American businesses is due to the fact that midsize companies can operate around the world, and Bank of America helps these companies do so, adding that it “takes global reach done locally” to make it work. Scharf and Solomon also echoed that if their institutions did not exist, another institution would have to provide those services.

Improvements to the Financial System

Gottheimer asked what changes have made the financial system safer since the crisis, to which Gorman replied that they now have double the capital, triple the liquidity, have cut leverage by 75 percent, have living will orderly resolution in place, and noted that while they had risk limits in the low 100,000s before the crisis, the level is now 30,000.

Rep. Ben McAdams (D-Utah) asked for examples of where the current legislative and regulatory framework needs improvement, to which Corbat replied that regulatory harmonization is needed, as regulators are often not in agreement about what a regulation says how to implement it, both domestically and internationally. Dimon agreed, adding that many of the regulations cost money that gets passed down to customers. Gorman stated that the lack of international harmonization creates arbitrage. He also spoke about how his CCAR plan this year was 71,000 pages, up from 56,000 pages last year. Moynihan and O’Hanley echoed comments about regulatory harmonization, with O’Hanley adding that there is a “very different regime” for the banks and non-banks, leading to different levels of protection. Scharf echoed the comments about CCAR submissions, adding that the same is true of living wills.

Waters asked if the institutions had ended lines of business since the crisis, and whether this has made their businesses easier to manage. Those who had ended lines of business said it had made their institutions easier to manage.

Diversity and Inclusion

Rep. Ann Wagner (D-Mo.) asked about diversity and inclusion at Bank of America, to which Moynihan replied that he oversees the initiative and wants all of their employees to be aware that they can grow at all levels of the company, noting that half of their employees are women, with a high percentage in management roles, and 45 percent of their employees are people of color, and about 35 percent of managers are people of color. Reps. Scott Tipton (R-Colo.) and Gregory Meeks (D-N.Y.) also asked about diversity practices in place, to which Solomon replied that Goldman Sachs has committed $5 million to back business run by women and that they are expanding this practice to businesses owned by people of color. Gorman replied that diversity and belonging is “critical” to their firm, adding that they have a number of initiatives, including working with diverse and minority-owned businesses and vendors, as well as an employee program to bring women back to work.

Rep. Emanuel Cleaver (D-Mo.) asked the panel if their firms have a Rooney Rule in place requiring interviewing a diverse pool of candidates when filling positions, and witnesses acknowledged that they do.

Rep. Joyce Beatty (D-Ohio) asked about diversity, requesting that each witness commit in writing and report back to her as Chairwoman of the D&I Subcommittee to creating a Director of Minority and Women Inclusion that would report directly to them. The witnesses agreed to look into creating or restructuring current positions to facilitate this. She asked if they have minority firms managing their assets, and the firms that are in that business answered yes.

BSA/AML Reform

In response to a question from Luetkemeyer on compliance costs related to the BSA, witnesses discussed their manpower focused on compliance and the hundreds of thousands of suspicious activity report (SAR) filings made annually by the firms.

Rep. Anthony Gonzalez (R-Ohio) asked what needs to be done for BSA/AML reform. Dimon replied that SAR reports are sent in but rarely, if ever, given feedback on. He continued that bad actors will commit crimes at one company and then move to one of the other companies so it would be helpful if the firms could share information with each other, suggesting the government create a database where all firms input data that can be analyzed and assessed using artificial intelligence (AI). Rep. Denver Riggleman (R-Va.) asked if it would be helpful if institutions could share information with their foreign subsidiaries based on their risk management frameworks, to which Dimon replied it would.

Housing Finance Reform

Rep. John Rose (R-Tenn.) discussed mortgage reform and opening up securitization markets. Dimon noted that GSE reform “was supposed to have been done by now” and that it would reduce the cost of mortgages to consumers. He continued that the lack of a legal safe harbor prevents banks from the self-employed and those with previous defaults due to the legal risk. Rose stated that the GSE conservatorship is “unsustainable” and needs to end during the current administration, to which Dimon replied that he generally agrees. Dimon continued that regarding a government guarantee, it should only be a certain amount with private capital covering the other half of it. Rose noted that most Federal Housing Finance Agency (FHFA) lending has moved to the nonbank sector, which does not have the same high capital standards, increasing risk to taxpayers. Dimon agreed.

Capital Formation

Rep. Bryan Steil (R-Wis.) asked what factors are leading to the decrease in companies going public, to which Dimon replied that there is a much higher cost for litigation for public companies. Solomon added that the cost of being a public company has grown over the last 20 years, while the availability of private capital has “significantly expanded,” commenting on the need to find ways to lessen the burden of going public. Gorman added the burden of quarterly reporting for public companies.

Corporate Tax Cuts

Velazquez questioned the Tax Cuts and Jobs Act for making reduced corporate rates permanent while individual rates will expire, to which Diamond replied that the corporate tax changes allows for American businesses to be more competitive, which will lead to more jobs and increased wages over time.

Rep. Cindy Axne (D-Iowa) asked how companies are re-investing their profits from the tax cuts, specifically if they are using it for pay increases, reducing the pay ratio, noting that JP Morgan bought back billions of dollars worth of stock last year. Dimon said a lot of companies announced pay increases and investments and said the American competitive tax system is a cumulative long term effect of capital retained and reinvested in the U.S. to drive wages and growth “forever.” He noted that with stock buybacks, shareholders re-deploy capital to make other investments and decisions that are more beneficial than having sitting capital that cannot be used, adding that he prefers investment, not stock buybacks.

Cybersecurity

Rep. Frank Lucas (R-Okla.) asked what the banks are doing to address cybersecurity threats. Dimon said JP Morgan spends $600 million a year on cybersecurity to protect both privacy and the system at large, saying cybersecurity is the “biggest risk” the system faces. Moynihan pointed out that in many ways, the industry has taken it upon itself to drive successful implementation of cybersecurity regulations, and often makes the information they glean accessible to others in the system. O’Hanley called cyber a “clear and present danger,” calling for a move from an “adversarial” system to one with “real cooperation” between institutions and regulators. Gorman added that Morgan Stanley spent $50 million on cybersecurity five years ago and now spends $400 million a year. Loudermilk asked why federal financial regulators need to coordinate and create consistent cybersecurity standards. Moynihan said any energy that is lost in providing the same information twice slows down the process and spending time on something not important takes time away from more important issues.

Loudermilk asked Dimon for his thoughts about a federal framework for data security. Dimon noted that the CEOs will be meeting with Treasury Secretary Steven Mnuchin and the Department of Homeland Security (DHS) in an effort to work closely with the federal government to share data faster, as well as have common and safer standards.

Arbitration

Rep. Brad Sherman (D-Calif.) asked if the firms impose forced arbitration provisions on their regular middle class customers, and most acknowledged that they do not. When Sherman asked about allowing these customers to go to regular court, Dimon stated that while he would prefer arbitration, the customers are free to go to court and that the firm will even provide them with funds to go to small claims court.

Current Expected Credit Loss (CECL)

Luetkemeyer voiced his concerns with CECL, stating that it will have a “detrimental impact” on the economy. Dimon replied that while there are no concerns for his firm, it will constrain small bank lending during a crisis due to having to put up reserves. Luetkemeyer asked about CECL’s impact on the government-sponsored enterprises (GSEs), to which Dimon replied that he has not studied it, but it is a good question.

Brexit

McHenry asked Corbat and Scharf how their banks are planning for the risks posed by Brexit and if a no-deal Brexit could lead to systemic risk. Corbat said they have plans in place, such as relocating their bank out of the UK to Ireland, moving a portion of their broker dealer to Germany, and moved necessary employees outside the UK. Regarding a no-deal Brexit, he responded that there is a challenge posed but he does not see systemic risk. Scharf said they have been planning for a hard Brexit by moving a series of activities to their bank in Belgium and have moved away control functions from the UK, adding that they are closely moving client transactions away. Dimon said JP Morgan Chase is prepared for Brexit, but does not know all the potential outcomes.

China

McHenry asked Solomon if his bank divested from the Commercial Bank of China due to systemic risks and the slowing Chinese economy or for other reasons. Solomon said the Commercial Bank of China was going public, which led to the business decision, and it was not due to changes to the Chinese economy.

Rep. Barry Loudermilk (R-Ga.) referenced Dimon’s recent comments saying “he is both inspired and worried about China’s strength in fintech”. He asked what policy makers should be doing to ensure the U.S. is globally competitive. Dimon said he had a team go to China recently and said China is probably ahead in artificial intelligence (AI), and bottomline is the U.S. has one of the most innovative societies, but is behind in education and infrastructure.

Sanctions

Reps. Stivers and Duffy asked about sanctions and what will happen if large customers are not banked by U.S. banks, and Dimon replied that those companies will go to larger banks overseas. When asked if big European banks or state owned banks in China would help enforce American sanctions against rogue regimes around the world, Dimon replied that the sanctions have to be executed by American banks because they move the money and must have the reserve currency.

Consumer Lending

Rep. Juan Vargas (D-Calif.) asked if the institutions would lend to individuals who have defaulted on loans. Corbat said Citigroup would look at the circumstances, but likely not. Dimon said JP Morgan does give second chances and agreed with Corbat’s comments. Vargas asked which of the institutions would lend to individuals who inflated the value of their assets. Corbat said it depends on the type of loan, whether the lending is for personal guarantees or against an asset. Dimon said it is unlikely. Gorman said Morgan Stanley is not in the business, but if it were it would be very unlikely. Moynihan said in corporate settings lending depends on assets. Solomon said it would be very unlikely. Vargas asked which institutions would lend to an individual who committed loan fraud. Dimon said JP Morgan would do their homework, but unlikely. Corbat, Gorman and Moynihan said their banks would not. Vargas asked which institution would be approved for the extension of a loan from a different division in their institution to pay off a different loan. Gorbat said it would depend on the circumstance, to which Dimon, Gorman, Moynihan agreed.

Fintech

In response to a question from Rep. Josh Gottheimer (D-N.J.) about the use of fintech, Moynihan replied that millions of their customers are either mobile or digital and that fintech allows them to better manage their finances with the use of notifications and alerts on smartphones. Dimon added that fintech allows for fast small business loans, allowing for quick and cheap movement of money, adding that most services for rural customers can be accomplished on the phone.

Lender Discrimination

Reps. Wm. Lacy Clay (D-Mo.) and Ayanna Pressley (D- Mass.) asked about policies and procedures in place for firms to ensure there is not discrimination when approving loans. Moynihan said small loan lending is a major business to Bank of America and it follows a robust discipline practice in lending. Dimon said they do not redline, and that they are interested in using artificial intelligence (AI) to lend more to the black community.

Executive Compensation

Democrats asked several questions on executive compensation versus the average employee’s salary. Corbat replied that while his salary is decided by their Board and voted on by shareholders, there are opportunities for employees to advance in the firm and increase their pay.

Clearinghouses

Rep. Stephen Lynch (D-Mass.) asked if any witnesses have concerns about clearinghouses and whether the failure of a major counterparty or clearing member could cause a “major disaster.” Dimon said that although he thinks “we’re okay,” they do monitor that risk and it has to be “constantly monitored.”

Cryptocurrencies

Rep. Warren Davidson (R-Ohio) asked a number of questions about cryptocurrencies. Solomon said that like other firms, his is watching and exploring to understand the cryptomarkets as they develop, noting that the regulatory landscape for cryptocurrencies is unclear. Dimon added that there is no value to cryptocurrencies except what the next person is willing to pay for them, and Scharf said that cryptocurrencies are early in their existence and “insignificant” now as a real currency used to move value.

Guns

Rep. Carolyn Maloney (D-N.Y.) noted that some banks have adopted formal policies about how they do business with gun manufacturers and asked Dimon if JP Morgan would adopt a similar policy, to which Dimon said he would consider it. Rep. Sean Duffy (R-Wis.) questioned Bank of America’s gun policy, stating that it does not represent the values of all Americans. Moynihan replied that the decision was made by hundreds of their teammates located in strategic communities across the country and that the firm tried to get companies to amend their practices before creating Bank of America’s gun policy.

Accountability

Ocasio-Cortez praised JP Morgan for ending lending to private prisons and asked why young people can go to prison for jumping a subway turnstile while bank executives did not go to jail. Dimon replied that he does not believe those young people should go to jail but that if others break the law they should be jailed.

For more information about this hearing, click here.