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Any child who has ever heard the dreaded words "wait for your father to get home" understands the incredible waste and anxiety that consumes the time until the avenging patriarch appears. Friends don't come to play, thoughts are too jumbled for homework, and nothing is accomplished until the punishment has been meted out. Children may gain some perspective, some insight, by meditating on the mistakes they have made. Banks, however, don't meditate and everyone suffers when uncertainty controls the market.
That banks made mistakes in the years leading to the credit crisis is undeniable. Those 'occupying' Wall Street will argue that the banks must be punished for their mistakes. In the last three years, regulators and attorney generals, anxious to appear diligent in the eyes of the voting public, have brought suits and regulatory actions. Fines have been levied and banks closed and merged. Is it enough? Have the guilty been suitably chastised? That will be decided by councils of attorney generals and bank supervisors. My concern is that time spent waiting for the other shoe to drop is wasted time.
Regulators from New York to Basel are anxious to see banks increase their capital to promote stronger banks resilient to future credit shocks. But what investor wants to put a single dollar in an industry that has been put on notice of impending punishment of unknown severity? Telling the voting public to "stay tuned" is tantamount to telling the investing public to stay away.
As a nation we want to find the best possible management for our financial institutions, but what credible business leader wants to sit on the board of a bank that has a cloud hanging over its future? A bank that has fallen to a low point and is ready to rebound is a challenge. A bank that is "staying tuned" for future punishment is a pariah.
To subject the banks to uncertainty about potential punishment is to hobble their ability to raise capital and make loans; to prolong that uncertainty is to hobble the wide circle of businesses whose lifeblood is the capital that the banks should provide. We need decisive action from our regulators to bring closure to the punishment phase of this crisis. Any further delay is costly to everyone. This is not a plea for clemency. But whatever the severity of the punishment, the market will be better off for having faced the worst and confident in the knowledge that the problems of the past are behind them.
Strong leadership is necessary from Washington to organize attorneys general and bring the bank regulators together so that a final determination of justice can be resolved. Then, and only then, can investors, insurers, prospective employees and counterparties be confident that banks have put their legal and regulatory problems behind them and ready to move forward.
Drop the shoe already.
Richard Magrann-Wells is a senior vice president and the financial services consulting practice leader for Willis North America.
