U.S. Bancorp Chief Executive Officer Richard Davis joined regional bankers urging regulators to craft rules that won’t unfairly constrain lenders who handled the financial crisis better than their Wall Street rivals.
“One size shouldn’t fit all,” and overreaching by rulemakers helped slow the global recovery “because banks were precluded from taking appropriate risks,” Davis said in a June 6 interview. “We need a fair head to prevail, that says, look, we need not to reduce the entire industry to a stymied outcome.”
Davis, who never posted a loss since becoming CEO in 2006, spoke a day before the Federal Reserve formally proposed rules to meet higher international capital standards, known as Basel III, for banks with $500 million or more in assets. CEOs at other regional banks, including M&T Bank Corp. (MTB)’s Robert Wilmers, also have said regulations are becoming too complex and costly for “Main Street” banks.
Regulators ought to consider how financial firms fared during and after the 2008 financial crisis, said Davis, 54, whose bank ranks fifth by deposits for U.S. commercial lenders.
“The test is whether or not going forward they can let us all move forward at independent, different speeds based on the performance that either we had going in, or the confirmation of our performance coming out,” Davis said.
Wilmers has said some Main Street banks are victims of the crisis rather than contributors to it. Higher compliance expenses and capital requirements will boost customers’ borrowing costs and hurt economic growth, Wilmers wrote in his Feb. 23 annual letter to shareholders.
“One has the sense that little or no thought has been given to the cumulative effect of the new directives, both on costs and operations,” wrote Wilmers, 78. “Our goal is not to seek favors or special dispensation -- but rather to have the chance to do our part in helping craft a regulatory regime that does not impede, but rather enables sustainable economic growth.”
M&T, ranked 13th by deposits for commercial banks, also remained profitable throughout the financial crisis. Both lenders received funds from the U.S. Treasury Department’s Troubled Asset Relief Program in 2008.
Executives at Buffalo, New York-based M&T, which has yet to repay the bailout, have said the company was reluctant to accept it in the first place. U.S. Bancorp, based in Minneapolis, repaid TARP about seven months after receiving the rescue. Both banks count Berkshire Hathaway Inc. (BRK/A), the insurance and holding company run by billionaire Warren Buffett, among their biggest stakeholders.
“There was a lot of pressure on banks to prove that they were strong enough to receive it,” M&T Chief Financial Officer Rene Jones said in April. “We took the minimum to show that we were strong enough to qualify but also strong enough not really to need it.”
KPMG LLP’s survey of 100 executives last month found 69 percent citing regulatory and legislative pressures as the most significant barrier to growth over the next year. Bank managers will be spending most of their time on cutting costs in the next two years, according to 43 percent of the respondents.
Regional banks are grappling with increased compliance costs from regulations including stricter capital rules and provisions of the 2010 Dodd-Frank Act such as the Volcker rule, which limits lenders from making bets with their own money in so-called proprietary trades. The rule would burden smaller banks with having to prove that they’re not in the proprietary- trading business, M&T executives have said.
Executives at the biggest banks aren’t engaging in behavior to “intentionally harm” the industry, Davis said. Still, when it comes to scrutiny placed on the banks, “we should not act like we don’t know why it’s there,” he said.
Davis had increased net income eight straight quarters until the three-month period ended March 31. The company’s return on equity and return on assets, two measures of profitability, are tops among 15 U.S. banks with market values exceeding $5 billion. Davis has steered his bank away from riskier businesses, such as investment banking.
“There’s still plenty of time for the banks that do well to be permitted to move forward,” Davis said. “The banks that either have more to do or haven’t done something need to stay back until they get it right.”