With 55 hours to go before the delivery of the latest stress test results, U.S. Bancorp Chairman and CEO Richard K. Davis struck a mostly sanguine tone Tuesday morning in describing the review process and in assessing the industry's prospects for passing it.
"The No. 1 goal in all this, like in 2009 — the first stress test — is are banks going to be ok, and I think they're going to check that box," he said in his keynote address at American Banker's Best Practices in Retail Banking conference, which wrapped up today in Boca Raton, Fla.
The latest round of stress tests, Davis said, also shares some of the goals of the 2011 review process, which was largely intended to help regulators decide whether to greenlight banks' plans for returning capital to shareholders. That element of the process instilled "a bias to be conservative" in laying out proposals to increase dividends or to buy back stock, Davis said, explaining that banks would have been reluctant to risk asking for too much leeway because there was no negotiating with the Federal Reserve once the requests were filed. "They call us back for clarification, but there's no conversation," he said.
Davis told the audience that he largely agreed with the idea of using capital as a proxy for soundness. Calling capital "a perfect catch-all," he said that regulators "might not figure out all the other issues that can atrophy a bank — even liquidity. But just have enough capital; it's probably the safest thing you can do."
He acknowledged, however, that the emphasis on capital has its shortcomings. "What I don't like about it is we're building a church for Easter Sunday, and it's not going to be used but maybe once in awhile."
