Bank of New York Mellon (BK) Chief Executive Gerald Hassell goes to bed each night worrying about cybersecurity.
Though excessive regulation, lackluster loan demand and persistently low interest rates pose more everyday threats to banks, Hassell said Thursday that his biggest fear as a CEO is that hacktivists will somehow infiltrate the bank's computer systems. BNY Mellon manages money and clears transactions for large institutions and governments, so a break-in would not just damage the bank's reputation, it could cause disruptions in global commerce.
"It is very real," he said of the cybersecurity threat. "We have to do everything in our power to protect our customers' data."
Hassell, who is also the bank's chairman, made the comment during a wide-ranging discussion on the state of the banking industry at an economic forum in New York. Hosted by the Economist, the forum brought together business leaders from a cross-section of industries to discuss trends and predictions for the year ahead.
Hassell, one of two bankers asked to discuss trends in banking, applauded regulatory changes that require banks to hold more capital, noting that the efforts have made the banking system far safer than it was five years ago. But, like many bankers, he is eager for regulators to reach a consensus on capital, liquidity, proprietary trading and other regulatory fixes so that banks can better game-plan for the future.
"The financial institutions are dealing in three- or four-dimensional chess," he said. "We're trying to anticipate what is the proper amount of capital, liquidity... to deal with the new regulatory order."
Hassell also weighed in on the "too big to fail" debate, saying he believes regulators deserve more credit for devising a framework for winding down troubled institutions. Though nothing has been finalized, the Federal Deposit Insurance Corp. is expected to soon begin accepting comments on its proposal for taking over systemically important institutions.
"I think we have seen enormous progress that's not well recognized," Hassell said.
Asked if he believes large banks should be allowed to fail, Hassell did not hesitate. "If we screw up, we should fail," he said. "No institution should survive if [it doesn't] perform to the level that one expects."
Scott A. Shay, the chairman of the $21 billion-asset Signature Bank (SBNY) in New York, said that, despite all the efforts to reduce risk in the banking system, the threat of a major mishap a la the London Whale episode at JPMorgan Chase (JPM) last year is always lurking. Indeed, he predicted Thursday that some big bank go through a crisis next year that might not lead to a failure but could send a "shudder" through the industry and the economy.
"We can't ever think that we can regulate away risk," Shay said. He added that such an episode "will underscore the need to deal with the 'too big to fail' issue."
Shay and Hassell both said that they believe the Federal Reserve's long-running policy of buying mortgage bonds to hold down interest rates has run its course and are hopeful that the Fed will begin to taper its bond purchases in 2014. Both made the argument that the low interest rate climate is starting to inhibit economic growth because it is encouraging businesses to stockpile capital, not necessarily hire more workers.
"We are replacing human capital with financial capital," Hassell said.
Still, Shay said he business owners' faith in the economy is slowly improving and that the feeling among Signature's lenders is that their clients are "itching to expand and take on more risk."
If business owners are serious, he added, they should consider taking out those loans before rates inevitably rise.
"We tell all our clients, if you are thinking about borrowing, then now is the time to do it," he said.