Issue 6 - December 2011
View From The Bridge
Conversations with three CEOs who were at the precipice of the unparalleled banking crisis
Richard Kovacevich, Sheila Bair and Richard Parsons occupied powerful vantage points during the financial crisis. In these interviews, they discuss the causes of the crisis, reforms that have been put in place and the future of the banking industry. Kovacevich dissects how U.S. government actions drove a run on investment banks. His provocative insights challenge what is becoming conventional thinking about what it will take to spur the economy. He also offers insights into the business strategies that have made Wells Fargo a $1.2 trillion financial powerhouse. Parsons was leading a mega bank that was on the brink of nationalization. He steered it through the crisis, and ultimately, graded the U.S. government B+ for its efforts in navigating the disaster. Having emerged from the shallows, he articulates Citigroup’s role in the global financial system. When Bair took the reins at the Federal Deposit Insurance Corp. (FDIC) in 2006, the organization was aware of what was going on, but few listened. In the aftermath, Bair raises concerns about community banks. They can play a huge role in economic growth, but they might be stymied by regulatory burdens. She also discusses the Dodd-Frank reform legislation and how she hopes it will lessen the risk of future crises. These interviews were conducted by William M. Isaac, Senior Managing Director and Global Head of Financial Institutions of FTI Consulting. Isaac was chairman of the FDIC during the banking crisis of the 1980s. He also serves as chairman of Fifth Third Bancorp.
Challenging Sacred Cows
Wells Fargo famously navigated the financial crisis better than most of its peers. Now the man who led the bank through the crisis to the high ground, former Wells Fargo chairman and CEO Richard Kovacevich, challenges what is becoming conventional wisdom about what drove the financial crisis.
Kovacevich argues that a bank’s risk has nothing to do with its size — banks fail because their risk is too concentrated. He firmly believes that TARP, stress tests and mark-to-market accounting did not stem the crisis; they made it worse by creating panic. Legally combining commercial and investing banking didn’t fuel the crisis — this particular crisis would not have occurred had the Glass-Steagall Act not separated the two industries in 1934. And the Dodd-Frank Act absolutely does not end “too big to fail.” Kovacevich also brings his experience to bear on the vexing challenge of emerging from the crisis and spurring U.S. economic growth.
The following are excerpts from the interview conducted by William M. Isaac, Senior Managing Director and Global Head of Financial Institutions at FTI Consulting. He is the former chairman of the Federal Deposit Insurance Corp. Isaac also serves as chairman of Fifth Third Bancorp.
The complete interview is available at fticonsulting.com/critical-thinking. It further illuminates the dangers still inherent in the financial system and is a must-read for all who work in, regulate and analyze the banking industry — or, like most, simply rely on its health.