WASHINGTON — While the postcrisis regulatory and legislative environment is still challenging for commercial banks, Rob Nichols sounds just as concerned about an internal threat: industry discord.
The incoming chief executive of the American Bankers Association says a large focus for him in the new role will be on industry cohesiveness. Declaring he wants to end "bank-on-bank violence," Nichols says that the "factioning" of institutions based on size and other attributes can hurt the industry's overall message and that he plans to prioritize issues that unite the sector.
"We'll have more influence and clout working together rather than being segmented. That's a message I've been delivering to our members," said Nichols, who sat down for an extensive interview earlier this month with American Banker's Washington bureau on topics ranging from regulatory relief to leveling the playing field between banks and nonbanks.
But Nichols, who is succeeding former Oklahoma Gov. Frank Keating as the ABA's chief, acknowledges that achieving common ground throughout the association's diverse membership base will not always be easy.
"I know there will be times when it will be tricky to keep the banking coalition together, but that will be my starting point for every exercise," he said.
A former Treasury Department official in the second Bush administration who also worked on Capitol Hill, Nichols comes to the ABA after running the Financial Services Forum. The change is quite a shift. The Forum represents 18 of the largest Wall Street firms. The ABA, by contrast, represents thousands of institutions (the ABA has historically declined to offer a precise figure of its membership). They range from the very big to very small and can have different interests on certain issues.
Yet Nichols said the banking industry's diversity is an asset that all institutions should want to champion.
"The ABA is the one group that represents banks of all sizes," he said. "Our capital market is the envy of the globe because we have a thriving set of community banks, globally active banks, [and] regional and midsized banks. Everyone else … wants what we have. They want this. Let's fight to protect it and preserve it."
Nichols listed core issues where he said there is much more agreement than not. Banks together should make the case about their role in driving the nation's economy, he said, and the industry as a whole has an interest in banks' staying relevant with millennials as they settle on financial services options. Another core area for banks, Nichols said, is the convergence of the financial and technology sectors.
"Getting that issue and relationship right with the technology and the carrier sector is critically important. We need to partner properly with them," he said. "There will be regulatory implications going forward, of course, with all of this. But our relationship as a sector with the tech sector is very important. The last thing we want is to be in the back seat of the car wondering where we're going. We need to be in the front seat."
Since he was announced as the ABA's new leader in May, Nichols has quickly engaged in outreach efforts with bankers, state associations, regulators and others. But he does not become the group's sole CEO until November following a transition period while Keating is still aboard.
"I'm replacing someone who I have a personal friendship with and that I admire and I think is someone who served this nation with distinction for many, many years. That transition will be smooth, seamless, orderly," he said.
Following is an edited Q&A with Nichols.
Your predecessor, Frank Keating, is said to have delegated much of the ABA's in-the-weeds details to his staff compared to his predecessors. Do you intend to follow suit or will you be more in the weeds?
ROB NICHOLS: I intend to be a very hands-on leader, just as I was at the Forum, just as I was at Treasury. I'll be very involved. To underscore that, I've met with all the senior staff … and number two, I've just started this week going to all the divisional staff meetings within the building, and there are many, many, many of those, to get a firm and crisp sense with texture and specificity with regard to what everyone is working on. I intend to be a very hands-on CEO at the ABA. In my conversations with the board, that was something that I demonstrated as being very interested in, and there was a reciprocal interest on their part.
There is a perception that the ABA in particular took hits to its influence following Dodd-Frank. How do you plan to fix that?
Without looking in the rearview mirror, but rather looking forward … focusing on issues that unite all the ABA members is critically important — this issue of marketing to millennials, this issue of getting the convergence between banking and technology right. It doesn't matter if you're the largest member, or the very smallest, you care passionately about those things. Having the ABA focus on things that unite all of the member banks regardless of size on the asset ladder is really important. No. 2, I do think the factioning — the fact that there are different sizes drifting a little — I think that does impact our influence. That's a message I've delivered to bank CEOs over the last two weeks of all sizes, small, medium, large, midsize, regional, saying, "We will be stronger together." That has really resonated with every single person I've talked to. They all get it.
Obviously the industry has faced reputational challenges coming out of the crisis. That means we need to redouble our efforts particularly on educating policymakers on the role financial institutions play. We've had a huge turnover in Congress post-Dodd-Frank. You have lots of brand-new people who weren't around for Dodd-Frank and weren't around for Tarp, but you still see all the lingering reputational challenges associated with the industry. We need to go back in to all of those people and remind them of the fundamental role banks play, which is ultimately helping spur economic growth. I don't want to oversell this. Lots of things need to happen for our economy to grow at a greater clip. But one of them is we need a thriving financial sector and a banking sector. Reminding people of that role is really important.
How will you stake out a position for the ABA's diverse membership, including banks of varying sizes, on issues that historically divide large and small institutions, such as "too big to fail"?
Every ABA member wants to end "too big to fail." It doesn't matter if you're the largest or the smallest member. Every single one emphatically and passionately wants to end "too big to fail." The perception that there's a big delta of views on that issue within the ABA membership — I can tell you after two weeks, there is not a delta in views. … Every single person in the ABA food chain wants to end "too big to fail."
In terms of promoting our economic growth, it's the small institutions that will really make an impact there. The [large] banks can absorb due to scale all the new regulatory burden thrust upon them. … But for our nation to really grow we need those 5,000 small banks to play that intermediary role and to do so effectively. There is a lot of focus at the ABA on helping the community banks get regulatory relief. The large banks and regional banks support that. … There is more alignment there. The ABA focus will rightly be on those smaller institutions, on those small banks. … I'm not saying it's going to be easy. I know there will be times when it will be tricky to keep the banking coalition together, but that will be my starting point for every exercise.
How do you respond to critics who say the ABA is pushing regulatory relief as a cover to help big banks?
The simple fact of the matter is if you look at what the ABA is advocating for, it's to help the nation's 5,000 smaller banks. It's not stuff to help the CCAR banks. [Large banks' safety and soundness is assessed through the Federal Reserve's Comprehensive Capital Analysis and Review.]
Some of the larger financial institutions are supportive of that relief because they think it will help our overall economic interests. … The simple facts are when you go through these issues these are issues that help our nation's smaller banks, full stop. That's the data set. Those are the facts, and I would be happy to discuss those facts with any lawmaker who would have questions about it.
Banking policy issues used to be relatively bipartisan, but the crisis and Dodd-Frank changed that. Do you think it's possible to return to a less polarizing climate?
It will be a huge challenge. We're going into a political year. It starts with creating bipartisan relationships. It starts by trying to take the temperature down on these issues and really just talk in a fact-based way about what the financial sector and specifically what the banks do. I also think a key aspect to achieving some success there is trying to stop talking about how these issues hurt banks but talk about how they help or hurt constituents, clients, communities and customers of the banks. … I think that will slowly move us in the direction of a little more bipartisanship. … After the election cycle, we'll have another opportunity to hit the refresh button. We'll have a new administration and we'll have a new Congress. We'll work with both parties in a rather bipartisan way, but it won't be easy.
Consolidation remains a hot-button issue, but bank owners sell because they think it's in their interest. Should community banks fight to stay independent and resist consolidation?
I don't know what the magic number of banks in our nation should be, but there is cause for concern that that number has shrunk so considerably over the last several years. There are probably a lot of factors for that. It would be hard to make a blanket statement about what consolidation should look like. But if there are regulatory pressures that are factoring into that and making it harder for our nation's community banks to survive and thrive, that's a big problem. Now, there are other reasons why it happens. There's a family-owned bank and the family is done with it. But what I would be most mindful of and concerned about are there acute regulatory pressures making that consolidation more likely? That is a significant concern.
Is it still a question of "if" — whether regulatory pressures are a factor in consolidation?
There are more questions there than answers. A group like the [Financial Stability Oversight Council] or the [Office of Financial Research] should be asking those questions. I definitely think based on my own soundings and my own surveying of ABA stakeholders and banks through the last several weeks, even before I got here, I would definitely say that regulatory pressures are not helping small banks.
Banking advocates increasingly are voicing concerns about regulatory gaps for alternative financial companies such as payments startups. Is it a sincere concern about regulatory flaws or more that these firms are competitors?
As the banking sector has been more stridently regulated postcrisis, … there are aspects in the financial sector that are not or are very lightly regulated. It's those policy distortions that are things that I think we as a sector need to focus on. There are all the new payment apps. … If you have an ABA member bank that is subject to a certain set of regulations on how they interface with customers and then you have someone else that is lightly or not regulated at all and yet they're using the financial and payment system to engage and liaise with customers, that could create all sorts of policy challenges.
There's a push-pull at banks. Since the nation's first bank was around, protecting your money and protecting your data has been the bank's first principle. Sometimes that can make the innovative side more challenging to have a super-friendly customer interface that's interactive and wonderfully appealing. The bank is going to do everything it can to protect the customer's privacy, data and money. … And then you have a group over here that doesn't really care about that. Is there an inequity there, is there an unlevel playing field?
Do you think the regulatory relief bill could sneak through this year?
How they choose to do it is their call. We care that it gets done. … I definitely think there's a chance it gets done. We will be aggressively supporting that. … These core regulatory relief measures to help community banks will really be our Hill focus from now to the end of the year.
Both [Senate Banking Committee Chairman Richard Shelby and House Financial Services Committee Jeb Hensarling] as well as a whole host of Democrats have talked about regulatory relief for small banks. However, encouraging is one thing and getting it done is another.