Some kids grow up watching the Yankees and the Mets. I grew up in a small Illinois town watching Walter Wriston’s Citibank and David Rockefeller’s Chase Manhattan. I was a geeky kid, to be sure, but, in the 1970s, Citi and Chase and their respective leaders represented everything that was interesting and innovative about American banking.
Distance, undoubtedly, lent some of the enchantment: At the time, banks were hemmed-in geographically by regulation so a New York bank seemed quite far removed from the fields of Illinois farms. (Today, conversely, you see signs for Citi and Chase all over my Illinois hometown.)
But it remains true that, in the 1960s and 1970s, Wriston and Rockefeller reinvented American banking.
Rockefeller was, of course, the aristocratic scion whose brother, Nelson, also happened to be governor of New York. Together, the Rockefeller brothers toppled Robert Moses, built the World Trade Center, and developed the philosophy that bankers had social obligations to their communities and the world.
Wriston was the scrappy upstart who took on the blue-blooded Chase bank, championed retail banking (when others looked imperiously down on it), created the negotiable certificate-of-deposit for small investors, set up the first network of ATM machines (along with his key lieutenant John Reed), and aggressively expanded Citi operations overseas, becoming the first, real global American bank. As Roy Smith wrote in his book about the 1970s banking era, "Comeback" (Harvard Press, 1994), “When other bank heads seemed like bureaucrats, Wriston stood out as his own man.”
I thought about Wriston and Rockefeller as I watched the Feb. 11 hearing of House Financial Services Committee. Chairman Barney Frank called in eight CEOs from the nation’s leading banks. It was a sad occasion for me and those of us who love the banking business.
Today, in the midst of “the worst banking crisis since the Great Depression,” I find myself thinking where have all the great bankers gone?
Part of the problem in identifying great bankers today is because it is nearly impossible to identify what exactly a bank is supposed to be today. The market capitalization of the world’s largest financial services providers includes many “nonbanks.” And, as JPMorganChase CEO Jamie Dimon stressed in his Congressional testimony, nonbank lenders now constitute 70 percent of our nation's credit markets.
With most of the distinctions between these different financial institutions gone, is it any wonder that it’s difficult to predict the future of American banking?
It is true that the increased competition from nonbanks helped bring down the cost of credit, helped borrowers access a larger pool of capital, and obliterated old banking monopolies. But the increased competition also lowered credit standards, helped drive banks into exotic, new instruments, and obscured what it means to be a banker. Maximized profits, rather than a “fortress balance sheet,” became the focus for some bankers and nonbank lenders. Today, we are all reaping the whirlwind.
As former Comptroller Gene Ludwig has argued, it’s time for a return to banking basics. What are some of those basics?
First, great bankers, like Wriston and Rockefeller, act like it is their money at stake. As Louis Brandeis pointed out in 1914, if you’re playing with “other people’s money,” you’ll take a lot more risks than you would otherwise.
Second, great bankers worry about their reputations. “Reputational risk” was always meant to be a brake on some behaviors. The corollary of “too big to fail” is “too impersonal to shame.”
Third, great bankers are devoted to their customers and communities. Critics said Wriston’s ATMs removed the human touch from banking but when New York was socked-in by a week-long blizzard, the new 24/7 devices became instantly vital and a corporate culture was born, “The Citi Never Sleeps.”
Finally, great bankers do more than meet the minimal regulatory standards. As Karen Petrou has written, “we’ve seen all too many companies — bank and non-bank — where the books met all applicable accounting rules and showed no problems right up to the moment of collapse.”
Our great banking system will endure and will revive. Whether our banks are nationalized in name as well as deed almost matters less than drawing the correct lessons. One lesson should be the realization that our banking profession lost something along the way and we must return to basics, embodied by people like Wriston and Rockefeller, before we can eventually prosper again.
Walters is a former counsel to the House Ways & Means Committee. He is a partner of FedPoint LLC in Washington.