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How should we be doing?

Why isn't the economy taking off?

How should we be doing?

I remember a conversation with a banker in the “stagflation” days of the late 1970s. Inflation was roaring and business was “limping.” My friend said to me, “Business is lousy, so how is everyone driving around in a new car?”

That’s my crazy way of expressing my frustration with trying to understand the current environment, where we are doing better at the same time that we are not doing particularly well.

Common question, but not the right one

“How are we doing?” 

It’s a question often asked. Maybe the better question these days is, “How should we be doing?”

Based on her recent statements, I would suspect that Sen. Elizabeth Warren (D.-Mass.) would tell the community banking industry that we’re doing “fine.” Profits look strong and performance measures have returned to prerecession levels.

Where’s the Dodd-Frank problem that we’re always kvetching about? she’d like to know, no doubt.

The very large banks have been reporting second quarter earnings in recent days. All seems pretty well among that group, as all are showing improvement in most segments of their business and product lines.

So why do so many of us feel like we’re still in the ditch? 

Why won’t things “catch”?

That gets to my rephrased question: How we should we be doing?

As banks we draw our business from the markets we serve. We should expect to do as well as our customers taken as a whole—no better, but no worse. When our borrowers thrive, we thrive too. When our customers feel the pinch of difficult business conditions, we do also—if we’re truly serving our markets in a collaborative way.

An old boss used to say:  “Ed, you can’t run a bull market bank in a bear market.”  When our customers’ environment is less than robust, then that should accurately describe the overall condition of our business as well.

In my own view this is particularly apt today. Most of the people I talk to, bankers, and bank customers, feel that business can be better and should be better.

But when? How?

Conditions defy historical trends

Since June 2009, the official end of the recent recession, our customers have assumed an attitude of habitual caution.

Things should be a lot better today. Better than they are—and historically they were, at similar points in economic recoveries since World War II. We are looking at consensus estimates of GDP growth this year in the 2% range, rather than the 4% annual rate typical of other recoveries.

That’s a 50% shortfall!

This translates into cautious decision making on many fronts, but principally on hiring and capital investment. As bankers we’ve become cautious, too, reflecting our environments in two ways. Business is frankly less than robust and our regulatory environment is oppressive and stifling.

We need a more expansive understanding of our regulatory environment. Dodd-Frank, the CFPB, and all of the “cures” visited on us by Congress in the wake of the collapse all fit that category.

But there’s much more. It’s also oppressive government regulation of all aspects of our businesses, from the federal income tax code to the Environmental Protection Administration to the Wage and Hour Board to the Affordable Care Act. It’s a very long list … and we share all of these non-banking-specific challenges with our customers.

If you’ve read Doris Kearns Goodwin’s Bully Pulpit you’ll likely agree with me that we don’t want to return to the unregulated business environment that Teddy Roosevelt confronted when he took office. We’ve made a lot of progress in the social justice sense in the last hundred years. The value and the utility of much of the regulation that we deal with today would simply not hold up to the kind of scrutiny imposed by an honest and rigorous cost-benefits analysis.

Why do we collectively tolerate these impediments toward achieving the historical norm of GDP running at a sustainable 4% annual growth rate?

I believe the problem lies not just in Dodd-Frank and the CFPB. It’s the state of the American attitude toward finance and business. And it’s not encouraging.

America isn’t moving towards improvement

We are focusing on the wrong things.

The financial pundits are in the process of parsing the earnings press releases of the major banks. They make much of how one bank has significantly lower litigation expense, thereby helping performance improvement.

It’s a sad day when the best a bank it has going for it is needing lawyers less often than its competitors.

We should collectively raise our voices with theirs and demand relief from the hindrances that are externally and unnecessarily imposed on all businesses and that have wormed their negative presence into current rates of financial performance.

As banks we are not doing particularly well as measured by conventional analysis nor are our customers. To a degree our problems are attitudinal. But meanwhile, we’re wasting a lot of time and effort looking under the wrong rocks.

Time to shift gears

If government is the problem, then it’s within our power to change it. We can and should. But we can’t wait passively.

Perhaps our caution of 2009 and the years immediately following was appropriate but we’ve not really moved much beyond those days in the way we seem to think and react. To quote one of the political forces of our day, “It’s time for hope and change.”

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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