They’re Turning on Each Other



  • In a recent poll, only a quarter of the American public expressed confidence in the integrity of bankers
  • Federal rulemaking arising from the financial crisis could burden the efficiency of the American financial system for years to come

Robert Wilmers, M&T’s Chairman and CEO, wrote a letter to his investors (as part of the company’s annual report) that has received a lot of attention. After reviewing his company’s performance, his letter explained how the public no longer trusts banks or their leaders. As a result, regulation is being enacted that will hurt the industry and the overall economy.

Below, I have pulled out some of his comments about bankers. In addition, here is a PDF of the relevant part of his letter (the part about the banks and not the part about M&T). Here are some of his key comments and numbers about bankers:

  • A 2011 Gallup survey found that only a quarter of the American public expressed confidence in the integrity of bankers.
  • The Wall Street banks were central to the financial crisis and continue to distort our economy. Main Street banks were often victims of the crisis.
  • The financial crisis has resulted in the decimation of public trust in once-respected institutions and their leaders.
  • The result of this has been rulemaking that will burden the efficiency of the American financial system for years to come and will potentially have broader implications for the overall economy.
  • Bank leaders used to be seen as community leaders and even national leaders.
  • The average compensation in the financial services industry used to be exactly the same as the average income of a non-farm U.S. worker.
  • Investment banks used to be kept separate from traditional banks. Everyone specialized in markets and thoroughly understood those markets.
  • As banks started investing in areas where they possessed little knowledge, the reputation of banks and their leaders dwindled.
  • The subprime crisis was characterized by Wall Street banks betting on and borrowing against increasingly opaque financial instruments, built on algorithms rather than underwriting. The banks created instruments that they did not understand.
  • Bankers contorted the overall economy. Insurance, finance and real estate was 11.5% of GDP in 1950. By 2000, it had reached 20.6%.
  • Today, the largest six banks own or service roughly 56% of all mortgages and nearly two-thirds of those in foreclosure proceedings.
  • One bank services almost $2 trillion and close to 30% of all mortgages in foreclosure.
  • Since 2002, the six largest banks have been hit by at least 207 separate fines, sanctions or legal awards totaling $47.8 billion. None of these banks had fewer than 22 infractions. One had 39 across seven countries, on three different continents.
  • According to a study done by M&T, over the past two years, the top six banks have been cited 1,150 times by The Wall Street Journal and The New York Times in articles about their improper activities.
  • At a time when the American economy is stuck in the doldrums and so many are unemployed or under-employed, the average compensation for the chief executives of four of the six largest banks in 2010 was $17.3 million – more than 262 times that of the average American worker.
  • One bank with 33,000 employees earned a 3.7% return on common equity in 2011, yet its employees received an average compensation of $367,000 – more than five times of the average U.S. worker. (NOTE: I’m not sure where Wilmers is getting his data…the average US worker is not making $73,400…try cutting that in half.)
  • The Wall Street banks continue to fight against regulation that would limit their capacity to trade for their own accounts – while enjoying the backing of deposit insurance – and thus seek to keep in place a system which puts taxpayers at high risk.
  • In 2011, the six largest banks spent $31.5 million on lobbying activities. All told, the six firms employed 234 registered lobbyists.
  • It is difficult, if not impossible for bankers – who once were viewed as thoughtful stewards of the overall economy – to plausibly play a leadership role today.

Wilmers continues on by saying that others were also at fault. Here are a few of the best statistics he cited:

  • As of September 2011, of the 2.2 million mortgages undergoing foreclosure, about 730,000 (33%) were owned or guaranteed by the GSEs. Of the estimated 850,000 repossessed homes, 182,212 (21%) were held by Fannie and Freddie.
  • M&T looked at a sample of 2,769 residential mortgage-backed issues originated between 2004 and 2007 with a total face value of $564 billion. Of that sample, 2,679 (99%) were rated triple-A at origination by S&P. Today, 90% of these bonds are rated non-investment grade.
  • M&T’s cost of complying with regulation has increased from $50 million in 2003 to $95 million in 2011. In addition, their insurance premium to the FDIC (to maintain and replenish the Fund) increased from $4.5 million in 2006 to an annualized rate of $197.7 million at the end of 2011.
  • M&T’s “likely tally of annual compliance costs and revenue lost from these regulations is $342.6 million and would have represented 28% of pre-tax income in 2011.”
  • The Dodd-Frank Act contains, by one estimate, 400 new rulemaking requirements, only 86 of which were finalized by the start of 2012.

Wilmers concludes that the total distrust for bankers has led to rulemaking that will hurt our nation’s competitiveness. My intuition is that he’s right. We regulate in the rear-view mirror (creating rules that fix yesterday’s problems). But, more importantly, he’s right because this is human nature. The bankers were a huge part of the problem and they’re to blame for much of the rule-making that is going on.

McCombs Senior Lecturer Sandy Leeds provides analysis of key market issues on his blog, Leeds on Finance, where this article originally appeared.


The views expressed are those of the author and not necessarily The University of Texas at Austin.

About The Author

Sandy Leeds

Distinguished Senior Lecturer, Department of Finance, McCombs School of Business, The University of Texas at Austin

Sandy Leeds, CFA is a Distinguished Senior Lecturer at The University of Texas at Austin. He teaches graduate level classes in the MBA program and...


#1 From a historical perspective

From a historical perspective this is not the first time or last time that banks will be rightly or wrongly vilified. JP Morgan wrote a bit about both politicians/citizens unjustly pointing the finger at banks for problems not of their(The Banks) making. Its just one of those things.

#2 I fear this cycle will

I fear this cycle will continue as long as we are afraid to let banks fail. There's no incentive for them to be careful with our money if we don't hold them accountable.

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