Lessons Learned as a Rookie Bank Trustee
Article published in Longmeadow Neighbors
(May 2023)
In August of 2008, a group of investors and myself, with great enthusiasm and fanfare, opened the doors to the first community savings bank in Massachusetts in 16 years - NUVO Bank. We were going to be different. A month later the global credit crisis hit, and the way banking was done changed forever. Running a bank in competitive good times is hard enough, running it in the middle of a global economic banking meltdown is like climbing Everest in a blizzard in your underwear. Everyday you're blinded by another force of nature you never expected. To say it was an educational experience would be an enormous understatement. You never climb Everest alone, and luckily I had two of the best banking minds in the industry, Don Chase as our Chairman and Dale Jane as our President. Together, and with our solid board of trustees, hardworking employees and valued customers, we not only thrived, we survived.
The 5 Big Lessons We Learned Post 2008 Global Credit Crisis:
Strengthen Financial Regulations
Improve Risk Management
Increase Consumer Protections
Ensure Corporate Responsibility
Improve International Coordination
I could write a thesis on each of these lessons - and from 2008 to 2023; the regulators, and banking industry tried to apply these lessons. Well folks, it appears they have not. The recent banking crisis and failure of Silicon Valley Bank, Credit Suisse, Deutsche Bank and First Republic's are only the tip of the iceberg. We do not yet know the depth and severity of the problems under the surface of the global banking industry, but I believe they can be summarized as:
Complexity: The banking industry has become more complex. At Nuvo Bank, we focused on our core competencies and never wavered. We were a bank built to loan money to small and medium businesses to help them thrive. We never got involved in exotic investments. Keep it simple stupid was our motto. And we were always transparent in everything we did. No skeletons in our closet.
Technology Disruption: When we opened our doors in 2008, remote banking was our competitive advantage. We had one location. No one went there - they didn’t need to. Today fin-tech and digital banking has disrupted traditional banking models, creating new risks and challenges as well as opportunities for distrusting the old banking system which is ripe for disruption.
Globalization: The banking industry operates in a globalized economy with cross border transactions and international clients. All of this makes it more difficult for regulators to monitor and manage risk.
Culture: The culture of the banking industry has been critiqued for fostering greed, unethical behavior and accountability. As a former bank Trustee, I and my fellow trustees took our fiduciary responsibility to both our depositors and shareholders seriously.
Cybersecurity: The rise of digital banking has accelerated exponentially the risk of cybersecurity issues.
Conclusions: In my opinion, the banking industry, regulators and governments have learned very little from the 2008 global credit crisis. Banks got bigger, government regulations and regulators got bigger, and bigger isn't better. It's often a formula for disaster - the disasters we are experiencing right now. When there are too many people charged with doing too many things in a complex world, accountability and responsibility go out the window. President Harry, the 33rd President, was never afraid to say…”The Buck Stops Here.” It was a sign on his desk and he lived it everyday. I have yet to see one regulator, one government official or one banker from any of the recent banks that have gotten into financial difficulty, say, “The Buck Stops Here.” Until one does we will be loath to live the lessons of the past over and over again. “Give 'em heck, Harry,” I say, “give ‘em heck!”
Charlie Epstein is Vice President of Wealth and Retirement for HUB International and the founder of Epstein Financial Services, a HUBCompany.