Chiefs of the biggest U.S. banks said they have not used government bailout money for executive compensation, dividends or lobbying and are taking cuts in pay, according to copies of congressional testimonies obtained by Reuters on Tuesday.
The chief executives at Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, Bank of New York Mellon, State Street, Morgan Stanley, and Wells Fargo are slated to testify Wednesday before the House Financial Services Committee.
At the hearing they are expected to face a firing squad of lawmakers who want to know how their financial institutions spent money received under the $700 billion Troubled Asset Relief Program (TARP) and why more isn't being done to help homeowners.
Lawmakers are expecting some humility from the CEOs as well as acknowledgment that their banks will channel government funds to boost lending to consumers and businesses to help resuscitate an ailing U.S. economy mired in a recession.
"It is abundantly clear that we are here amidst broad public anger at our industry," said Goldman Sachs CEO Lloyd Blankfein said in prepared testimony.
Blankfein said he has never seen "a wider gulf" between the industry and the public and said many people believe — "justifiably so" — that Wall Street lost sight of its larger public obligations by allowing unchecked practices to undermine the financial system's stability.
Both Morgan Stanley CEO John Mack and Wells Fargo CEO John Stumpf said their banks have not used government money for executive bonuses, dividends or lobbying.
"I know the American people are outraged about some compensation practices on Wall Street," Mack said. "I can understand why."
Mack said banks want to pay the government in full as fast as possible.
LENDING, FORECLOSURES, MODERNIZATION
Lawmakers might not accept their defense as they are growing weary of having been asked to provide more funds to fix the banking system as well as jump-start the economy.
One of the criticisms banks face is that they are not lending to people to buy homes, cars and other big ticket items and for education, and instead is hoarding the cash as they try to meet regulatory capital requirements.
But the CEOs said their banks are indeed lending. "We have every incentive to lend. And, despite recessionary headwinds, we are lending," Bank of America CEO Ken Lewis said. "We are lending far more because of the TARP program."
In addition to feeling public outrage, committee Chairman Barney Frank told Reuters on Tuesday that he also wants to hear CEOS committed to the government's home foreclosure prevention programs.
Compensation restrictions and home foreclosure prevention efforts were part of a new bank rescue plan unveiled by Treasury Secretary Timothy Geithner on Tuesday.
With $50 billion to be used to help troubled homeowners, the U.S. government also is planning a bigger housing program to help homeowners. That program is expected to be announced next week.
JPMorgan CEO Jamie Dimon said his bank expects to help out 650,000 borrowers from losing their homes by the end of 2010 and urged the Obama administration to adopt a national standard for foreclosure prevention programs.
"The American people are right to expect that we use TARP funds responsibly, quickly and transparently," Citigroup CEO Vikram Pandit said.
Many of the CEOs, whose institutions helped cause create the worst financial crisis since the Great Depression, said the regulation of the financial system needs major reforms.
"We understand that the old model no longer works and the old rules no longer apply," Pandit said.
Dimon said he supports modernizing the financial regulatory system with the creation of a systemic risk regulator. "Everyone agrees that this needs to be done — and done right away," he said.
