March 4, 2024

Pat Toomey (R-PA) speaks during a press conference marking the launch of the Republican Infrastructure Plan at the U.S. Capitol in Washington on April 22, 2021.

Erin Scott | Reuters

The top Republican senator in charge of overseeing Wall Street regulation hopes the executives of the country’s largest lenders will “defend” capitalism when they appear on his committee.

Senator Pat Toomey, R-Pa., Said he wanted to hear bankers defend the practice of share buyback and assure the GOP that political and social issues do not affect which companies and individuals underwrite lenders.

“One of the things I hope and urge these people to do is stand up and defend capitalism,” he told CNBC’s Squawk Box on Wednesday morning. “I hope they will defend the system that has created more opportunity and prosperity than any other system.”

Banks need to “avoid the kind of appeasement of this whole movement that I see in some cases where I think political agendas are gradually creeping into banking policy,” he added.

Toomey’s remarks came hours before the best minds on Wall Street were due to testify before Congress.

CEOs like Jamie Dimon of JPMorgan Chase, Charles Scharf of Wells Fargo, Jane Fraser of Citi and David Solomon of Goldman Sachs will begin two-day hearings before the Senate Banking Committee, of which Toomey is the senior member.

Bank executives are likely to get into trouble from both sides of the political corridor, with Democrats hoping to eradicate racial differences in lending and Republicans keen to keep banks away from social and political commentary.

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Toomey criticized what he saw as the banks bowing to social pressure and activist movements to curb lending to certain industries, including fossil fuel and weapons manufacturers.

“The energy room is an interesting case. If these banks want to finance relatively inefficient energy producers but are green producers and therefore want to provide subsidies for it, I think that is between executives and their shareholders,” he said.

“If you cross the line and say, ‘By the way, we’re not going to give credit to oil and gas development’ … then you’ll make a judgment.”

Democrats, led by Senator Sherrod Brown of Ohio and Rep. Maxine Waters of California, are likely to alarm executives about their efforts to reduce the disparities in minority lending and their support for small businesses.

Brown made it clear from the start of his tenure as head of the Senate Banking Committee that he wanted to hear more about the country’s largest banks. He said in January that he was not convinced that the Federal Reserve’s regular assessments of banks had proven the group was in sound financial condition.

“I am not suggesting that CEOs of US banks, of Wall Street banks, I am not suggesting that they are Deutsche Bank,” the Senator said at the time in a reference to investigations against the German bank.

“But I suggest that they have a lot of power and we need to know more about how they do their business,” he added. “The more we hear from them, the better.”

The two parties are sure to argue over the banks’ share buybacks, a method of returning excess cash to shareholders that has been targeted by the Democrats as a form of market manipulation to increase executive pay.

Democrats say companies should use excess money to raise workers’ wages and, if necessary, return capital in the form of dividends.

Banks had been banned from share buybacks for much of 2020 as the Fed worked to assess the damage the Covid-19 pandemic was causing on financiers’ balance sheets. The central bank reversed that position in December when it said banks could resume buybacks in the first quarter of 2021.

Toomey and other Republicans have endorsed buybacks as a viable and sensible way of returning profits to a company’s stakeholders.

“Let’s face it: a very large part of the elected Democrats either openly view themselves as socialist or they advocate socialist policies,” said the Senator from Pennsylvania. “If you were to vote in the Senate today to ban share buybacks, that could happen. That’s how bad the situation is.”