Speak Up, Bankers! Don't Accept Blame for the Recession
The public image of bankers has clearly suffered over the last five years, and it is again under assault.
In fact, recent events and publicity are beginning to transform the public perception of conservative bankers to that of villains. They are said to have stolen $500 billion from the American people, indulged in personal excesses, instigated real estate crashes, and are now prolonging the recession.
Bankers are getting a bum rap, and it is time they started to speak out in their defense.
The latest assault on bankers is coming from the Bush administration. The President has put forth proposals to ease regulations and free up lending. The proposals themselves are not the problem. In fact, they call for important and reasonable regulatory changes.
However, the way the Bush administration characterizes these proposed changes is a distortion of their original intent. The decision to modify the regulations came out of discussions that had nothing to do with turning around the economy.
Yet this is what the administration is claiming in a move designed to serve a political agenda - an agenda to shift blame for a continued economic recession away from Washington and onto the banks.
With an election around the corner, what better industry to use as a scapegoat than the already battered banking industry? These proposals allege that bankers are scared to lend and are withholding money because they fear the regulators, and that bankers have become weak-kneed and stubborn and are threatening our economy.
The thinking behind these proposals is that if only "those bankers" would do their jobs, real estate values would recover, gross national product would rise, and overcapacity in our economy would disappear.
First, no one in the industry believes an adjustment in underwriting standards will dramatically pull the economy out of its down cycle. The proposals to add preferred stock to Tier 1 capital and have examiners view properties with an eye toward financial viability are hardly the kind of changes to create an economic shock wave.
Banks make the majority of their revenue from investing in loans. Good borrowers have little trouble finding funds for a project that makes business sense. Speculative real estate ventures and marginal deals, however, are simply not attractive investments in today's real estate market.
We don't see the administration telling wholesalers they are not buying enough inventory. So why expect bankers to increase their loan inventory as though this were a bull market?
The truth is that the Bush administration knows that these proposals will not change the money supply or stimulate us out of today's economic problems.
Nothing but a Smoke Screen
The objective of these proposals is to move the public attention onto the banks and away from Washington. The administration wants to divert the focus away from things that the government could do to stimulate our economy - like reallocating defense spending and limiting farm subsidies.
These are explosive issues, and it is much easier to attack an industry that has a history of not fighting back.
What makes this all so surprising is that President Bush has spent a great deal of time pushing for many of the necessary banking reforms. He seems to understand the issues and has supported plans for a stronger, more competitive industry. But this is politics.
Banks therefore are at great risk of suffering a fundamental loss of public confidence. Dramatic changes could occur in the public's desire to do business with banks, and the landscape of financial services could be changed forever.
The industry has not been confronting its accusers, but it may be time to fight back in the public forum.
Mr. Clark is the managing consultant for the Los Angeles office of IBM Finance Industry Consulting. He consults with banks on strategy, operations, and technology.