ABA Directors Forum: The Directors Job, Observations About Banking’s Future From Former Member of the Ultimate “Bank Board”
ABA Bank Directors Briefing
November 2010
Mark Olson has worn many financial services hats in his time. He’s been a congressional staffer dealing in financial services. He’s run a family-owned community bank in Minnesota, and during that time been the elected head of ABA. He’s been chairman of the Public Company Accounting Oversight Board, created by the Sarbanes-Oxley Act, and partner at Ernst & Young LLP. And just before holding the PCAOB post, Olson served on the Federal Reserve Board, in a sense a director on the ultimate U.S. bank board, for five years.
Olson, now co-chairman of Treliant Risk Advisors, LLC, a bank consulting firm, opened the ABA Directors’ Forum in Boston in mid-October. He shared observations of the current scene in banking and corporate governance with directors and trustees attending the meeting.
Highlights of Olson’s wide-ranging talk:
1. Consumerism risks.
Olson advised board members to take a hard look at how dependent their bottom line is on what he called “gotcha fees.” There will be increasing focus on this—even after the recent
debit-card-related changes to overdraft service compliance, attention to that hasn’t decreased, for instance—and banks must assess their actions carefully.
Olson said this in light of his judgment about the Bureau of Consumer Financial Protection. “I’ve been following bank legislation for 40 years,” said Olson. “The authority and power given to the director of that agency exceeds anything I’ve ever seen.” He added that hearing of bankers who felt they had protection from the agency because they are community banks made him think of “latter-day Neville Chamberlains” and “black umbrellas.” Chamberlain was the British prime minister prior to Winston Churchill, who believed he had struck a deal with Hitler ensuring, in his words, “Peace in our time.”
He carried a trademark black umbrella and, in a famous photo, displayed a note signed by Hitler promising peace.
2. Compensation challenge.
While the Dodd-Frank Act and regulatory action have established new considerations in this area, Olson said, “this isn’t France—we won’t tell you what you have to pay.” However, he said, the government has made it clear what it wants boards to be looking at.
Olson’s advice: “Don’t be the anomaly—either as a bank or as an individual—that sticks out from the rest of the industry, or within your organization.”
3. Compliance.
Community bankers already worry about the compliance burden from Dodd-Frank and most of the rules are still under development. Olson had sad advice here: “The compliance environment we are in is going to be a way of life.”
His suggestion, in recognition of that, was to consider compliance as important to the board “as any quality control. Regulators want to see that compliance has the same priority as safety and soundness.”
4. Enterprisewide risk management.
Olson said that this phrase should be “on the tip of the tongue” of every director and trustee. Increasingly, a good understanding of what the phrase means and what it implies for your bank will be expected.
“You really need to develop that focus,” said Olson.
5. Profitability.
Olson believes the next five years will see banks take a look at their fundamentals, in an effort to see where the industry’s sources of profitability will be, going forward. The extended thinning of margins and the falling away of key areas of fee income demand consideration, he said.
6. Consolidation.
Ultimately, Olson said, what will drive the consolidation of the banking industry into fewer institutions—predictions are all over the lot—is the maturity of the industry itself. Fundamentally, as a mature industry, the banking business can only grow at the rate of the U.S. Gross Domestic Product, he explained.
7. Lessons taught over and over.
While much of what he had to say made listeners thoughtful, one aspect of his speech seemed depressing. Olson predicted that after the healing, recovery, and new growth from today’s crisis go on, in 10 to 15 years, “we’re going to do this all again. There is a remarkable cyclicality.”
8. Anti-community-bank conspiracy?
For several years there has been talk that Washington has a conspiracy against community banks. Olson, apparently anticipating the question from board members whose institutions have been under examination pressure, went straight to the matter himself: “Anybody who believes that gives the regulators too much credit. They don’t have the capability to be that Machiavellian.”
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More from the ABA Director’s Forum, and the ABA Annual Convention that it preceded, will be posted at www.ababj.com over the next month and presented in “The Director’s Job” in future issues. (Note: ABA Subscription Required)
