Bank failures and takeovers. Real estate loan portfolios
loaded with delinquent and defaulted loans. Debates about the doctrine of “too
big to fail.” Debates as to whether regulators moved too fast in taking over
banks or not fast enough. Worries about tight credit and the loss of local
institutions.
Those topics are merely the highlights of the current
debacle in American banking, an industry hit harder by the Great Recession than
almost any other.
But we might also be talking about the savings and loan
crisis, the Third World lending crisis, the oil patch lending crisis and dozens
of regional real estate collapses that wrecked balance sheets of banks with
concentrations of loans in those markets.
No industry is immune to cycles of expansion and
contraction, or to the hubris born from success that leads to a comeuppance
born from technology, competition or the economy.
Even so, for an industry whose principal job is protecting
our money, banking has demonstrated an uncanny ability to stumble into a
distressingly wide variety of ways to squander that wealth.
Washington has had its share of participation in those
squanderings, from the oil patch loans that nearly did Seafirst in (and forced
its sale to Bank of America, opening the door to interstate branching and
acquisitions) to the S&L crisis that claimed a few institutions in the Northwest
to Washington Mutual’s ill-fated excursion into subprime lending. Now the
state’s community banks, which bet heavily on the real estate
construction-and-development horse, are losing big.
Given that track record, the question arises why banks
didn’t seem to learn anything from their painful experiences. It could be
argued that no business, especially one tied so intimately to the economic and
monetary systems, could reasonably expect to escape the effects of a recession
this severe. But it could also be argued that the recession was so severe
precisely because of the behavior of the banking industry.
Here’s a thought about why: None of those prior disasters
was widespread or systemic enough to scare everyone straight.
The regional real estate collapses were just that, limited
to a handful of markets in one corner of the country. Third World lending was a
playground only a few very large banks cavorted in. And while the S&L
crisis was national in scope, it involved only a piece of the financial services
sector, operating on a model many thought was irreparably obsolete anyway.
Compounding the problem, at least in this state, is that
bankers have had it good for a long time.
It’s no great talent being a good banker in a growing
economy, if success is measured in the loans you generate today. Unfortunately,
the quality of a banker is truly measured in how well those loans hold up in a
bad economy.
“It’s been some time since we had this kind of comprehensive
economic malaise,” says John Rindlaub, chief executive of Wells Fargo’s Pacific
Northwest region. “There have been a lot of newly minted bankers … a lot of
bankers who haven’t been through this kind of challenging time when you see
what happens to borrowers.”
Rindlaub believes those bankers “now understand why you need
to be conservative around how you structure deals,” why it’s good to have at
least two ways to be paid (cash flow or collateral of some sort) and the
importance of matching the maturities of assets and liabilities.
“A lot of bankers now get it specifically because of this
environment,” Rindlaub says.
But do they really get it? The recession delivered its
message of responsible behavior with a bellow. If the point didn’t get through
this time, it never will.
And yet history is not encouraging. Lots of bankers in
individual companies, sectors and regions have been through intensely rough
times, but that didn’t create enough of an institutional memory to keep the
industry out of trouble this time.
Americans are well known for their short-term memories; when
the recovery comes, we will forget the recession and its lessons and neglect
preparations and protections for next time.
Which is not good news. Because as long as there’s a banking
industry, there’s sure to be a next time.