Goldman Pandemic Loans Spur Scrutiny From Senate’s Brown, Warren

LAGOS (Capital Markets in Africa) — The Senate Banking Committee is questioning whether Goldman Sachs Group Inc. paid dividends at the expense of lending to businesses and households during the pandemic as lawmakers take a broad look at the support big banks offered clients to get through the economic slump.

Committee Chairman Sherrod Brown and fellow Democrat Elizabeth Warren sent Goldman Chief Executive Officer David Solomon a letter late last week, asking how its banking unit made use of a temporary weakening of capital requirements last year, a move regulators intended to spur lending. The lawmakers asked him to produce data on the unit’s lending and on Goldman’s distribution of cash to shareholders.

Industry groups “have argued that these reduced capital requirements support lending to small businesses and households,” Brown and Warren wrote, according to a copy of the letter viewed by Bloomberg. “It has also been widely reported, however, that banks are devoting a smaller share of their resources to lending for small businesses and households.”

The inquiry is part of a broader debate over whether U.S. banks are offering enough credit to help the economy rebound. As individuals and companies sought loans to get through Covid-19 lockdowns last year, federal regulators temporarily let big banks reduce the amount of capital needed to support their activities. But, by some measures, bank lending declined to record lows as firms piled up cash and securities effectively guaranteed by the federal government, Federal Reserve data show.

“Throughout the pandemic, Goldman has provided a wide variety of financing to all of its clients — from consumer loans to traditional corporate loans, and equity and debt financing in the capital markets,” company spokesperson Andrew Williams said. “Across all financing categories, volumes were up, and we are proud to have helped our clients and customers through an unprecedented and challenging year.”

Goldman’s bank subsidiary last year increased total loans and lending commitments by 10% to $236 billion, according to an annual company report. But deposits, a key source of funding to make loans, increased 29%. That gap is found across the broader U.S. banking system, which increased loans by just 3% even as deposits jumped 22%.

Brown and Warren previously criticized federal banking regulators for loosening rules to let big U.S. banks borrow more while simultaneously reducing capital by buying back shares or paying dividends to shareholders.

Among their questions for Solomon, the pair asked if Goldman loosened its underwriting to make more loans to borrowers with dings on their credit reports and whether the bank provided cheaper credit to its customers. They asked him to respond by March 26.

Source: Bloomberg Business News