10 kinds of bank CFOs who will never get the CEO job

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Opening for B.B. King, Blood, Sweat & Tears and other blues and rock stars in Miami as the "warm-up" band had its perks: My bandmates and I got to hang out, jam with and learn from the best. With four singles recorded at the world-famous Criteria Studios, and one getting some airplay, we thought the Leaves of Grass would make it.

Instead, we were just another "no-hit wonder."

This taught me a simple lesson: Believing you're destined for top doesn't mean you'll get there, whether in a band or a bank.

In banking since 1970, including consulting with hundreds of banks and teaching finance for over 40 years, I've concluded that some bank CFOs will never be CEOs. No-hit wonders, not because they aren't good bankers, but because they aren't CEO material.

I've identified at least ten types of CFOs who may move laterally to another bank but not upward to the CEO role. Horizontal not vertical CFOs, who'll never get the upstairs corner office.

First is the "hedging is for hedge funds CFO" who refuses to hedge interest rate risk, insisting "hedging is for investment banks not commercial banks." These CFOs loaded up on low-yielding government securities during and after the pandemic, exposing their banks to significant interest rate risk but failing to hedge against rising rates. A 2023 study found that over 75% of banks reported no material use of hedging, which was mainly concentrated among larger banks.  Total unrealized losses on held-to-maturity and available-for-sale securities last year were over $300 billion, down from roughly double that amount in 2022 and 2023. Jamie Dimon explained this best after acquiring failed First Republic Bank: "What we didn't take on was First Republic's excessive interest rate exposure — one of the reasons it failed — which we effectively hedged within days of the acquisition."

Second is the "myopic CFO" who lives and dies by quarter-end results. A prime example, again from one of 2023's three big bank failures, was Silicon Valley Bank's CFO, who boasted of an "opportunistic" sale of nearly all the bank's $15 billion of interest-rate swaps in 2022 to "book gains" and hit their quarterly numbers. Short-term gain but long-term pain. Actually death, in that case. The autopsy by the too-little-too-late Federal Reserve concluded the bank "managed interest rate risks with a focus on short-run profits … and removed interest rate hedges."

Third is the "Dilbert CFO" who, like the brilliant but arrogant engineers in the "Dilbert" comic strip, put down marketing, compliance and other bank functions because of their "finance knows best" belief. In their view, the bank's nonfinancial souls fail to understand and appreciate the CFO's financial wizardry and the shareholder value it creates. These CFOs are convinced they're the smartest bankers in the room, and they let everyone know it.

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Fourth is the "CRA greenwashing CFO," who opportunistically buys CRA investments to secure approval of a merger challenged by a community group, then promptly liquidates them. This CFO fails to realize those same conned community groups and regulators will remember the ruse on the next M&A deal, which may end very differently. That same greenwasher also loads up on CRA investments before an exam to impress a gullible examiner, then quietly liquidates the position after receiving a passing rating. Fool them once, shame on you, but fool them twice and pay the price.

Fifth is the "failure to communicate CFO," a numbers rather than a people person. Speaking in their native language of Excel, they lack the ability to effectively communicate with others inside or outside the bank without referencing a spreadsheet or financial dashboard. "You'll have to pry Excel out of their cold, dead hands." CFO number geeks lacking people skills belong in the back office in front of computers but never in front of customers, analysts, shareholders, regulators or, perish the thought, journalists.

Sixth is the "just say no CFO," who believes their job is to manage risk and protect margins through cost cutting. Running their "Department of No," these CFOs are so risk averse that they immediately discard banking's new "ABC" opportunities, namely AI, banking as a service, and crypto, because their costs outweigh perceived benefits. By comparison, successful CEOs constantly evaluate and manage risks by opportunistically saying Yes.

Seventh is the "rearview mirror CFO," fully focused on previous quarterly or annual results and unable to make credible forward projections. The historic numbers alone lead that CFO to pass on an M&A deal, while a forward-thinking CEO looks beyond the books at valuable intangibles like eliminating a competitor, acquiring needed talent, entering a new market, or expanding AI and fintech opportunities. Retrospective CFOs can explain yesterday's results but lack the vision about what needs to happen tomorrow to profitably grow their bank.

Eighth is the "outsourcing CFO," with a costly overreliance on outside treasury advisory services and consultants to manage the bank's portfolio. Investment banking and advisory firms, who are second on their speed dial after family, should be judiciously used for M&A and other one-time deals, not for daily treasury management. This is especially the case if those same advisors encouraged loading up on low-yielding post-pandemic bonds without adequate hedging.

Ninth is the "benchwarmer CFO," who lacks the "emotional intelligence" to lead, communicate with the board or motivate a team. They run the books but lack the social awareness, networking, communication and other soft skills needed to run the bank. A good quarterback has the trust of the coach to motivate the team to win the game, especially during critical "red zone" times. The benchwarmer CFO belongs on the sidelines, cheering on the team.

Tenth is the "can't close CFO," who couldn't even sell a rate cut to a borrower. Salespeople are the best CEOs. Banking is not only about making money but also selling. Convincing people and businesses to deposit and borrow when needed. Persuading retail and institutional shareholders to buy your stock. And selling regulators on the bank's unique business plan. Just like a basketball coach can't teach height, great salespeople are born not made and are "simply doing what comes naturally."