Listening to Jim Rohr talk about financial services policy reminds me how important it is to get out of Washington every once in a while.
Rohr, who stepped down last week after running PNC Financial Group for 13 years, approaches policy questions with a sort of practicality that's rare here. He's also pretty unfazed by many of the things that have Washingtonians pulling their hair out.
Still, Rohr does have a list of policy issues that he thinks deserves more attention.
"Cybersecurity is one of the biggest issues we have," he says during an interview in his office overlooking downtown Pittsburgh. The frequent attacks on banks' systems are not simply about disrupting service. "All this is test-and-learn," he says, and defenses must be beefed up before the bad guys learn enough to do some serious harm.
"When you are thinking about risk to the financial system, we are doing a really good job of nailing down the historic mistakes," Rohr says. "But we are missing what technology is doing to the industry."
Firms beyond banking are claiming an ever larger share of online payments and yet they do not face the same capital, security or anti-money laundering requirements that banks do, he says.
"PayPal is part of eBay. eBay doesn't have any capital. No capital. There's none. There is no tangible capital and there is no BSA-AML requirement."
Rohr adds, "I think it's a competitive issue down the road, but I think it's a systemic risk issue right now, and no one is addressing it."
Rohr also worries that some financial institutions don't have the resources or perhaps the sophistication to defend themselves from hackers.
"One of the things that concerns me is they are going to go in and take over the identity of a small bank," he says, and then use that entry point to get inside the larger firms. "One of the questions we need to ask ourselves — and this won't be popular — but are you too small to defend yourself?"
This connects directly to the debate over Too Big to Fail. Rohr does not think the largest banks are "too big" and he worries that government plans to whittle them into smaller pieces will backfire.
"If we're going to reduce the size of the banks and reduce their capital budgets, that will reduce their tech spending in a world that is going absolutely in the other direction," he says.
"We have nations attacking our financial system and we want to reduce ourselves to a lower common denominator? I just don't think that's a good idea."
The TBTF debate in Washington has shifted from a strict size cap to ratcheting capital requirements high enough that companies voluntarily shrink. In the wake of the Dodd-Frank Act, Rohr says the largest banks have enough capital on their books. What's more, he says decisions about capital levels should be handled by professional regulators — not politicians.
"More capital doesn't necessarily make the banks that much safer," he says. "You have to assume we are in the business to make loans and make money. The idea that you can remake the entire industry through a legislative bill with people who have never been in the industry is… well, you will get what you ask for."
None of this is terribly surprising coming from someone who has been in the business 41 years — all of them at PNC. But here's something that may surprise you: Rohr supports the heart of Dodd-Frank.
