Executives of major U.S. banks faced tough questions Wednesday from U.S. lawmakers frustrated by the slow pace of lending by institutions that received federal bail out money. Lawmakers also vented their anger over high salaries and bonuses in the financial industry, warning the executives they need to accept greater transparency and re-build public trust.
Amid the distress of the U.S. recession, and public anger over how government support funds have been spent to prop up financial institutions, executives said they favor steps by Congress and the Obama administration to impose greater accountability.
"Taxpayers want to see how we are using this money to re-start the economy and want us to manage our expenses carefully. These expectations are appropriate and we are working to meet them," said Ken Lewis, CEO of Bank of America.
"The American people are right to expect that we use the TARP funds responsibly, quickly and transparently to help Americans," added Vikram Pandit of Citigroup.
Americans, added Pandit, also have a right to expect a return on their investments in the $700 billion Troubled Asset Relief Program, or TARP.
That, and questions about how individual banks have or have not used funds to expand lending and help repair the crumbled credit market dominated the House Financial Services Committee hearing.
"Taxpayers have lent their money to the big banks who are supposed to be big business persons [with] expertise in business management, who are failing, they have gone back to ask for some assistance [and] they are being denied," said Democrat Maxine Waters.
The criticism was bipartisan, as lawmakers from both parties also highlighted the issue of bonuses paid by banks, and million-dollar salaries.
"We believe success should be rewarded, but what gets people upset and rightfully so are executives being rewarded for failure especially when those rewards are being subsidized by the U.S. taxpayers," said Texas Republican Jeb Hensarling.
"Why do you need bonuses? Can't we just give you a good salary, or give yourselves a good salary [because] you're in charge of that, and do the job? This notion that you need some special incentive to do the right thing troubles people," said committee chair Barney Frank, Democrat from Massachusetts.
Executives said that while federal funds were used to improve their capital base, banks have done what they can to expand lending.
John Stumpf of Wells Fargo said his company made more than $500 billion in new loan commitments over the last 18 months.
"Last quarter alone we made $22 billion in new loan commitments, and $50 billion in new mortgages, a total of $72 billion in new loans," said Stumpf.
Public anger has been fueled by media reports that banks and institutions receiving public funds handed out more than $18 billion in bonuses and that some continued the practice of spending on employee retreats.
Democrat Paul Kanjorski warned that banks will be under ever-increasing scrutiny.
"As executives at large companies, you once lived in a one-way mirror, unaccountable to the public at large, and often sheltered from shareholder's scrutiny. But when you took taxpayer money you moved into a fishbowl. Now everyone is rightly watching your every move from every side," he said.
James Dimon of JP Morgan Chase and John Mack of Morgan Stanley voiced support for plans by congressional Democrats for reforms, including a proposal to create a powerful new authority to regulate financial risk.
"In the short term this will allow us to begin to address some of the underlying weaknesses in our system, and fill the gaps in regulation that contributed to the current situation," Dimon said.
"We need to fundamentally improve systemic regulation. Our fragmented regulatory structure simply hasn't kept pace with the increasingly complex global market," added Mack.
Lloyd Blankfein, CEO of Goldman Sachs, agrees banks need to regain public trust.
"It is abundantly clear that we are here amidst broad public anger at our industry. Many people believe, and in many cases justifiably so, that Wall Street lost sight of its larger public obligations and allowed certain trends and practices to undermine the financial system's stability," he said.
Congressman Frank has said he would like to see substantial progress on financial system reforms in coming months.