A common theme running through several news items should give bankers pause on their current tactics for arriving at a new regulatory world.
The country is clearly frustrated on any number of fronts with political economic environment. From the Tea Party, to the anti-Wall-Street crowd, to the silent majority that is hunkered down and fearful for the future, anger at The Establishment is higher than at any time since the Vietnam era.
Usually, I would defend the banks from having any obligation to help with the defeasance of such anger. After all, banks are private businesses that have an obligation to maximize returns for their shareholders.
But there is an obligation to insure the safety and soundness of the system for the allocation of credit and the smooth functioning of the financial markets. That is a critical underpinning for maximizing returns to shareholders.
I have no idea what either extreme really wants, but it is easy to identify the lack of employment and the inability to seemingly make progress on the housing front as interlinked issues that are frustrating the country and holding back progress.
Add to that a lack of contrition on the part of bankers and a failure to acknowledge, that whatever might be wrong with Dodd-Frank, an improved regulatory oversight function with transparency is a necessary part of the future. The "trust us" era is over. The "culture of risk management" that was supposed to protect everything broke down at Bear Stearns, Lehman Brothers, Merrill Lynch, Countrywide, Washington Mutual, and most astonishing of all, AIG.
So fighting regulation designed to reduce systemic risk places the industry in the position of being insiders undoing things that protect the average person. And it is average people who are angry.
I know this is too simple, but there are things the industry can do to help itself:
- By all means work to improve Dodd-Frank so that it is practical, but don't undermine the fact that strong regulation is needed to prevent another 2008. Right now the only thing people hear is the Republicans saying repeal Dodd-Frank. Working behind the scenes with the regulators to fine-tune regulation is the traditional manner, but the general population believes that the bankers are trying to pull a fast one on the general public. The industry needs to be clear what parts of Dodd-Frank are good policy that will avoid a repeat of 2008, and what parts need to be improved and what can be done to improve them.
- Work to get the GSEs to relax their rule forbidding people, who are current on their mortgage, but underwater on loan/value, from refinancing the entire current balance at current interest rates. The GSE risk is reduced because the payments are more affordable while the loan/value in unchanged. It would also help disposable income and should raise economic activity on the margin.
- Work with businesses that need bank credit to grow and hire employees. Do so in a prudent manner, but also do so with an attitude that is seen more commonly in a bullish economy.
- Provide any insights possible to regulators to try and reduce the volatility in the stock market from all this computerized trading. It is draining the average person’s confidence that they can be treated fairly with their investment plan for their savings.
Thomas J. White is a former executive vice president and head of credit at Dwight Asset Management and has held senior portfolio and risk management positions at MetLife and J.P. Morgan & Co.