While almost everyone has felt the impact of the recession, few have felt it as strongly as the banks, which are roundly blamed for making poor lending decisions that led to the economic collapse, at least in real estate.
On March 12, Richard Davis, chairman, president and CEO of U.S. Bancorp, visited Boise to tell the bankers’ side of the story at a Boise Metro Chamber of Commerce luncheon.
You wouldn’t think there’s much for Davis to explain. Most people – especially those who go to chamber luncheons – know what banking is about. It has been around in one form or another since mankind started using currency, and at its most basic, it hasn’t really changed. People who want a safe place to store their money deposit it in banks; banks use that money to make loans. Loans help businesses grow.
But confidence in banks has plunged over the last few years, and that’s what Davis was hoping to correct.
First, he explained bankers and banking at their most basic: as the means for change to happen. Not as the doers, the movers or the innovators, but as fuel that drives those deeds, moves and innovations.
He gave the three principles that he laid out when he became CEO of U.S. Bank in 2006. The initials are CPR, which stand for Consistent, Predictable, Repeatable. It’s not very exciting, as Davis pointed out. But it carries a reassuring message for banks right now because the banks, as Davis noted, are facing a very unfriendly regulatory environment.
Davis likened his world nowadays to that of a poorly run basketball game. In this game, the rules are changing all the time, and the venue has been altered unexpectedly as well. The fans don’t know the rules have changed; all they know is that the coach is doing things differently for some reason. The referees are mean and aggressive, and the team owners just want their team to win.
“That’s not altogether different from the regulatory world we’re under today,” Davis said. “It’s who understands it better that does better. What matters here is execution.”
What Davis didn’t need to explain is that the basketball teams he’s talking about also picked up a great deal of bad will along the way, some of it justified. The public and the pundits blame the banks for making speculative loans that led to wild economic growth and then the widespread economic downturn between 2008 and 2011.
Even the Government Accountability Office, the investigative arm of Congress, blamed banks’ poor lending decisions, particularly in real estate, for the real estate crash and for at least a share of the economic decline.
The finger-pointing is far from over. While the stock market and housing markets appear to be making a comeback, student loans are an economic drag that will burden their recipients for decades. The students’ chances of repaying those loans are especially poor if they can’t find jobs in their fields.
The Federal Reserve Bank of New York said the number of student borrowers who have fallen behind on payments has soared. According to the bank’s report in February, 35 percent of the people younger than 30 who have student loans were at least 90 days late on payments at the end of 2012. That’s up from a quarter in 2008 and just a fifth in 2004.
U.S. Bank got out of the student loan business in April. The company only held about 1.5 percent of the market share anyway, a spokeswoman said.
And Davis, on behalf of bankers, did accept some blame for all the poor lending decisions.
“I am here to confess to you that up until recently, bankers have been baggage handlers, not the pilots,” he said. “We make mistakes. But no more.”
“I’m not complaining about it; it’s a different paradigm for us. We’re adjusting to a world of perfection, and we’re going to mess that up on the way, so work with us,” he said. “But understand we’re working toward being better. That’s going to be a very good outcome of this recession.”
Anne Wallace Allen is managing editor of the Idaho Business Review.