Richard Davis, chairman, president and CEO of Minneappolis-based U.S. Bancorp, is positioning himself front and center in discussions with the administration and Congress over the direction of the nation’s financial industry regulation.
In a radio interview Monday, for example, he criticized the banking industry, saying that “as an industry, we failed the American people,” a view he said is shared by most of his banking colleagues.
As the new chairman of a powerful industry lobbying group, the Financial Services Roundtable, based in the nation’s capital, his views will inform the debate in Washington on financial regulatory reform. U.S. Bancorp recently hired an experienced lobbyist to set up its first Washington office. Davis also is a member of the Financial Services Forum, an association of CEOs of 18 of the largest financial firms.
Davis faces a tough political environment where he said banks have a “very negative reputation for [being] the responsible party for this financial downturn.” He gave Minnesotans a preview of a decidedly more conciliatory tone coming from the industry as the debate moves forward in Washington and across the country.
In an hour-long interview on Minnesota Public Radio with talk show host Kerri Miller Monday morning, Davis was alternately apologetic, diplomatic and combative in discussing the future of the banking industry. He insisted most leaders in the industry recognize their low credibility with both Washington and the public, saying they have done “a lousy job of describing our position and our relevance in this economy. We haven’t done a very good job of describing what we’ve done right and what we’ve done wrong. … As an industry, we failed the American people.”
But he resisted the notion that there was widespread opposition to financial regulatory reform within the banking industry. Acknowledging that there are “a few outliers” resisting change, Davis said the majority of his colleagues “believe now is the time … we start making amends for the things we did wrong, and also show how important we can be in the recovery going forward.”
Davis is optimistic that he can work with the Obama administration but acknowledged the challenges. Saying the president was speaking to individual Americans in a recent “60 Minutes”interview, Davis was “not at all surprised by the outrage” Obama expressed, calling some bankers “fat cats” as he criticized their compensation practices. While calling the reference “unfortunate,” he acknowledged that “this is our president saying, ‘I hear you. I feel your pain. I’m not out of touch with what the problems are.’
“Behind the scenes. I’m more excited about conversations we’ve had with the White House in trying to develop new ideas and new plans than perhaps we can see publicly,” Davis added. “I suspect I’ll be disappointed at the State of the Union address where he’ll have to continue that longstanding rhetoric against banks.”
Davis voiced strong support for the reappointment of Ben Bernake as chairman of the Federal Reserve, scheduled for a vote this week in the Congress. He described the current Fed chairman “as probably one of the most important figures in the last couple of years … in averting a financial collapse. Even people like me who were in it … will never quite appreciate how close we may have come to … an imminent collapse and failure of so many pieces and parts of the financial system both domestically and globally.”
But Davis gave a more tepid endorsement to Treasury Secretary Timothy Geithner. Saying Giethner “is doing a better job now that he’s been in the job a while,” he described himself as “generally satisfied” with the secretary’s performance. “I’d just like to have more dialogue,” with the secretary, he said.
Davis called for changes in monitoring and overseeing risks to the financial market as a whole, “systemic risk,” in industry jargon.
One idea he floated was establishment of an oversight panel made up of representatives from the major regulatory agencies. This panel would evaluate the systemic risks posed by a small number of financial institutions to ensure that “no company can get that important or become that complicated. And if they start to demonstrate some areas of risk that we can no longer manage, then we should have the right to dissolve the company.”
But he opposed the notion that size alone creates systemic risk. Using U.S. Bank as an example, he described the nation’s fifth-largest bank as “one big regional, simple bank… not in the middle of some of these very complicated products.” Davis argued: “It’s not the size … it’s the complexity, interconnectedness, interrelatedness, global activities … It’s the house of cards theory …that if something breaks it starts to … affect so many other things. That’s what should be identified as systemically important.”
Calling it “a huge nuance,” he also explained the banking industry opposition to a new consumer protection agency, pointing out they favor establishing “bright line laws and rules around how to litigate when a consumer hasn’t been treated fairly. We need that. We welcome it. Bring it on,” he said.