You’d think the horrors of the last financial crisis would be deeply etched into the brains of every banker in the U.S. But according to former Bank of America executive Rick Parsons, some bankers could very well have missed out on lessons of the crisis.
States such as Georgia, Washington and Florida are full of wounded bankers, said Parsons, who left the industry in 2011, lives in Charlotte and now writes and speaks on the banking industry. But other states, including North Carolina, didn’t suffer as many bank failures, leaving them less wary about past mistakes.
“I think one of the reasons this industry repeats the same mistakes over and over again is because the people who learn the lessons most brutally are the ones who then leave the industry,” Parsons, 60, told me in a recent interview. His second book, “Investing in Banks: Strategies and Statistics for Bankers, Directors, and Investors,” a guide for investing in banks, was published last month.
Parsons’ comments come at a time when some regulators and elected officials continue to voice concerns about the potential for the nation’s largest banks to trigger another economic crisis if they were to fail. Such worries stoke calls by critics of large banks who want to see them busted up.
Parsons, a former risk executive for Bank of America, is among those who argue that federal regulators will need mega-banks to help lift the U.S. out of its next financial crisis. Big banks, such as JPMorgan Chase & Co. and Bank of America, played a crucial role in the last meltdown by acquiring other troubled lenders, preventing their collapse and further economic mayhem, he notes.
But a concern today, Parsons said, is some bankers might not have witnessed the worst of the crisis at close range, making them more vulnerable to taking missteps. For example, bankers in North Carolina, he said, did not experience the volume of bank failures during the height of the crisis as some in other states.
“I’m not sure about the younger bankers. I think the jury will be out,” said Parsons. “I think the next generation who will be running (banks) in the 2020s will not have as good a memory as the bankers who are running the banks today,” he said.
Another ongoing fear of some big-bank critics is that they are not being required to hold enough capital, a buffer against potential losses on loans.
In his book, though, Parsons says bank capital when the crisis hit was more than sufficient to weather the worst of the disaster. Since then, big banks have been required by regulators to raise capital levels even higher. Parsons points out that requiring banks to further raise capital levels could cause them to pass those costs along to customers in the form of higher fees and interest rates.
A different source of unease, Parsons said, is that some types of loans are increasing faster than the overall U.S. economy. For example, construction and development lending is up 15 percent year over year nationally, he said.
“We are not in a vibrant economy in the U.S.,” Parsons said. “If you’ve got a 2, 2.5 percent GDP at best, there is no way bank lending should be growing 6 percent, 7 percent, 8 percent overall.”