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60 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST GOVERNMENT Addressing Accountability CEOs of megabanks discussed the improvements made by their institutions since the Great Recession at a House Financial Services Committee hearing. T he U.S. House Commit- tee on Financial Services recently held a hearing titled "Holding Mega- banks Accountable: A Review of Global Systemically Important Banks 10 years after the Financial Crisis." CEOs of eight of the largest U.S. banks attended as witnesses, including Michael L. Corbat, CEO, CitiGroup; James Dimon, Chair- man and CEO of JPMorgan Chase & Co.; James P. Gorman, Chair- man and CEO of Morgan Stanley; Brian T. Moynihan, Chairman and CEO of Bank of America; Ronald P. O'Hanley, President and CEO of State Street Corporation; Charles W Scharf, Chairman and CEO of Bank of New York Mellon; and David M. Solomon, Chairman and CEO of Goldman Sachs. In her opening statement, Chairwoman Maxine Waters asked what improvements the banks have made in the years since the financial crisis. "The purpose of this hearing is to review the activities of these megabanks and examine how they are operating today," Waters said. "Ten years ago, the CEOs ap- peared before this very Committee to discuss the financial crisis and the massive bailout taxpayers provided. A decade later, what have they learned? Are they help- ing their customers, and working to benefit the communities they serve? Or are the practices of these banks still causing harm?" James Dimon discussed in his opening statement on the impact of excessive regulation and bureaucracy. "Excessive regulation for both large and small companies has re- duced growth and business forma- tion without making the economic system safer or better," Dimon said. "The ease of starting a business in the United States has worsened, and both small business formation and employment growth have dropped to the lowest rates in 30 years." He continued, "We need strong regulations, and we have to get better at effectively implementing them—accomplishing the desired good outcomes—while minimiz- ing unnecessary costs and bad unintended consequences." Representative Gregory Meeks asked the witnesses if they and their bank have looked at any alternatives to foreclosure "in the face of financial shock." In response, Brian Moynihan stated that Bank of America "does everything it can." "Foreclosure is the last resort for the borrower, and the last resort for the lender," Moynihan said. He also noted the centers opened by Bank of America aimed at assisting borrowers fac- ing foreclosure face to face. Other topics discussed in the hearing included diversity and technology, including the risks tech poses. A Penalty for GE The conglomerate will pay a $1.5 billion fine to the Department of Justice for subprime lending violations. T he U.S. Department of Justice (DOJ) has said that General Electric (GE) will pay $1.5 billion to end the DOJ's claims over sub- prime home loans that have been bundled into risky securities. According to the DOJ, GE misrepresented the quality of its subprime loans through its former mortgage business, WMC, and will pay its penalty under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). "The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make ac- curate and complete representations about their products. The failure to disclose material deficiencies in those loans contributed to the financial crisis," Justice Department Assistant Attorney General Jody Hunt said in a statement. "As today's resolution demon- strates, the Department of Justice will continue to employ FIRREA as a powerful tool for protect- ing our financial markets against fraud," Hunt continued. "This settlement contains no admission of any allegations and concludes the FIRREA investiga- tion of WMC," a GE spokesperson said in a statement to CNBC. "This is another step in our ongoing efforts to de-risk GE Capital. This agreement rep- resents a significant part of the total legacy exposure associated with WMC, and we are pleased to put this matter behind us." According to the DOJ, WMC originated more than $65 billion dollars in mortgage loans between 2005 and 2007. According to a member of GE's Corporate Audit Staff (CAS) involved in audits of WMC ob- served in April 2007, WMC "jacked up the volume without controls," leading to WMC receiving more mortgage applications containing fraud or other defects than its competitors. The DOJ alleges that by late 2005 and early 2006, investment banks were kicking out more of WMC's loans than ever, and after a review in March 2006, WMC found that 78% of the loan files reviewed contained at least one piece of false information. "The financial system counts on originators, which are in the best position to know the true condition of their mortgage loans, to make accurate and complete representations about their products. The failure to disclose material deficiencies in those loans contributed to the financial crisis." —Jody Hunt, Justice Department Assistant Attorney General