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Rebuilding reputation begins with you

Ebola crisis reminds that banking confidence starts locally

Rebuilding reputation begins with you

News of an Ebola-related death at a large hospital in Dallas that was followed within days of news of two additional cases among the deceased’s caregivers is a matter of tremendous concern at that hospital. How many people will now choose that hospital for a medical stay or procedure that’s purely discretionary? 

Probably not very many.

Compounding the hospital’s reputation risk are the details now circulating about the lapses in care and observance of protocols that have occurred since the now-deceased victim’s first visit to the ER almost three weeks ago.   

How does the hospital’s management counteract the public relations fallout from this tragic situation? How quickly can it recover? 

If anyone needs an example of a crisis of an existential nature, this is likely to become a classic one. What can bankers learn from it?

Reputation relies on a foundation of trust

No industry has been under more public scrutiny in recent years for mistakes and alleged misdeeds than the banking industry. Reputation risk comes in all sorts of ways and means. Generalizations, particularly among a variety of industries, are hazardous and can easily become “false equivalencies.”

Some enterprising reporter is likely to do a definitive story on the actual cumulative costs of the fines and penalties paid by the major names in the business. The total is enormous.

But that’s just the immediate wallop in the wallet. What are the long-term consequences to our industry likely to be? Will they be limited to the financial sanctions already levied, to be quietly forgotten as time heals things? Or will the industry live under a cloud of suspicion and mistrust for years?

Banking is a business that’s built on a foundation of trust. Since the low point of the financial crisis in September 2008 we have learned much about the nature of the behaviors of the players involved in the high-profile banking cases that made so much news.

Most such behaviors represented egregious lapses in judgment. Some may have been of a criminal nature as well. Many observers—including members of both political parties—believe that there have been too few prosecutions or consequences paid by culpable parties. They often remind us of the deterrent value of prosecutions.

My own sense is that many of the actions subject to financial sanctions announced earlier this year were lapses in individual judgment or of a managerial nature and not necessarily malicious or of criminal intent. Insufficient resources seem to have been devoted to problems that deserved stronger and more aggressive responses

There is a lesson for the future right there, no matter how big or small your bank.

In a few high-profile cases, the actions of the banks’ staffers look to have been a deliberate thwarting of federal law and related rules and sanctions of our government in the area of money laundering and anti-terrorist-finance related activities. Most bankers I talk to feel that parties guilty of violating laws and regulations should be punished. They believe that failure to do so creates an impression of governmental favoritism.

There are indications recently in the financial press that more charges of a potentially criminal nature are in the works relating to alleged price fixing among major banks in the area of foreign exchange trading.

We’ll see how high up in the organizational chart these allegations are made and whether public sentiment has been stirred by the political attention paid by Senator Elizabeth Warren (D.-Mass.) and others.

We all may have more reputational wallops to recover from.

What would be banking’s “Ebola”?

The Ebola “scare” is causing many who are looking beyond the headlines to reexamine the sources and likely impacts of reputation risk.

The threat to human life is not a consequence normally associated with doing business with a bank. Of course this makes any direct inter-industry comparison of the risks in this particular crisis not appropriate. Yet all businesses operate under the specter of adverse reputation risk from many and diverse sources.

Can any of us think about consequences of bankers’ behaviors that would ultimately cause a public repudiation of a specific institution? 

In a sense this is the sort of existential risk that occurs with a liquidity crisis. The bank becomes an untouchable to the extent that any depositor with funds in excess of the FDIC insured limit won’t deal with the bank in the normal course of its banking business.

It’s hard to imagine that the banking public would collectively bring about the demise of an otherwise viable institution for reasons not related to liquidity or solvency. However, is it completely inconceivable? Is there an event or a string of events that could become a “tipping point?”

There are examples in the relatively recent past of external actions that caused the demise of firms due to managerial misbehaviors. Consider:

One very large failure involved Arthur Anderson, Enron’s auditor.

The federal government charged the firm with criminal misconduct in its Enron dealings and the firm was found guilty in federal court.

The outcome was overturned many months later on appeal. In spite of that, the weight of that conviction caused the firm’s collapse and the loss of over 10,000 white collar and professional jobs.

Another somewhat related example was the frustration with bank supervisory agencies that forced a merger of Riggs National Bank, a large regional bank of its day, over repeated non-compliance with BSA-related law and regulation.

It wasn’t too many years ago that a bank’s principal source of reputation risk arose almost exclusively from the deterioration of its asset quality with the most direct impacts centered on liquidity and solvency. A bank thus “infected” suffers from a thousand cuts to its reputation in dealing with its various constituencies.

What can one banker do?

What does that suggest about how we as an industry deal with the ongoing attacks to our credibility and our integrity?  

What can we do to help reset the tone that overcomes negative reactions that have been attributed to the activities of the largest players? 

You and I can’t make much difference on overall public attitudes toward our industry.

But as individuals, as managers, and as leaders of banks, if that is our position, we can accept responsibility for the behaviors and outcomes within our own spheres of authority and influence. Accept it—and work to make sure it is unquestionably right.

As we react to the ugly news of Ebola and the possibility of more bad news to come let’s also remind ourselves that we too are caught in a cycle of blame and responsibility—but in our industry’s case the problem was due to circumstances that were completely avoidable.

Our industry’s situation is not a consequence of random victimhood created by a terrifying disease.

Granted. But to simply permit our industry’s reputation to be shredded by the public reaction of indifference is an ignominious and contradictory outcome for a business model whose cornerstone has been, is, and must be … trust.

We already see what the political response is: more regulation.

We can improve that outlook over time. But it will take more courage and common sense than we’ve collectively yet shown. It’s time to stop the griping and get after the “fix.”

Every trustworthy banker makes a brick. And together such bankers can make a wall. And multiple walls can make a structure of trust that people will come to rely on again.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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