Bank CEOs: Financial services sector prepared for economic downturn

The CEOs of the nation’s seven largest retail banks testified before the House Financial Services Committee today in a hearing that touched on a wide range of topics, although high inflation and the Federal Reserve’s decision to once again raise the federal funds rate loomed large.

“We are very concerned about the high prices that consumers are facing in America and, indeed, around the world,” said Jane Fraser, CEO of Citigroup. “We certainly have lived through very unusual times . . . So the impact of the higher [interest]rates that are required to try and tame inflation is likely to moderate growth in America and around the world and will put pressure on many of the drivers of the recovery that we’ve been looking for.”

During the six-and-a-half hour hearing, the executives fielded questions ranging from mortgage practices to foreign affairs to their institutions’ sustainability commitments. They were also pressed about the current economic climate and how well their banks were positioned to handle a potential downturn, with CEOs assuring committee members they were prepared for that possibility.

“You don’t have to take our word for it,” said Bank of America CEO Brian Moynihan said. “Look at the stress test for 10 years in a row. They’ve been stress testing under scenarios that have the worst indicator of every element that’s occurred.”

As the hearing was taking place, the Federal Open Market Committee announced it was raising interest rates by another 0.75 percent. JPMorgan CEO Jamie Dimon said he was keeping his fingers crossed that the Fed will be able to avoid the “hard landing” of a recession but remained optimistic if that wasn’t the case. “The consumer going into a recession is actually in rather good shape,” Dimon said. “Particularly compared to ‘08 and ‘09, businesses are in rather good shape. I think if you’d have a ‘hard landing,’ you’ll see a fairly traditional effect on financial stability. I don’t think that’s the issue. I think the real issue is global stability related to Ukraine and China … The financial industry here could easily handle a hard landing.”

The CEOs also used the opportunity of the hearing to highlight the benefits banks provide customers, with one being security. William Demchak, CEO of PNC Financial Services, noted that scams are becoming increasingly common across the financial ecosystem.

“Scams are growing daily, and regulators, the industry and, importantly, legislators need to respond,” he said. “It’s not enough that we apportion blame after the fact—we need to stop fraud and scams before they occur. Secure networks like Zelle, real-time payments and potentially Fed Now allow for direct authentication with a host bank. They also allow members of the network to identify, close and police against scam accounts. This is not the case with nonbank networks—these networks are not held to the same security standards as banks.”

The seven CEOs are scheduled to appear again today before Senate Banking Committee.