Richard K. Davis, U.S. Bancorp chairman, president and CEO, spoke March 12 in Boise as part of the Boise Metro Chamber of Commerce CEO Speaker Series. He explained why his bank abandoned the student-loan business and challenged the Federal Reserve's three post-recession rounds of "qualitative easing," or QE - bond purchases that have flooded the economy with money to keep interest rates down and encourage lending.
U.S. Bancorp has more than 62,000 employees, including about 1,380 in Idaho, of whom 420 are in the Treasure Valley. With 19 percent of the Treasure Valley market, measured by deposits, it's second only to Wells Fargo Bank.
Davis' comments here are condensed from a transcript prepared by chamber PR Director Caroline Merritt.
BANKING, 'BONANZA' STYLE
How many of you remember the TV show, "Bonanza?" You had Hoss and you had Little Joe and you had Hop Sing. They would leave the Ponderosa, and they would head into town. When they got into town, they would find the saloon, the general store, maybe the school, the hotel.
They would always find a bank. And the reason for that is because a bank had a very important purpose. It was as simple as a place of safekeeping for, in this case, whatever kind of a bar you may have, let's say gold nuggets, or in another case, a place where dreams actually get accomplished.
From yonder comes a [man]. He ties his horse to the post outside the bank. He walks in. He sees the bank personnel. He slams down a bag and says, "In that bag is a lot of gold. I don't know where to keep it. I can't put it anywhere safe. Wondering if you'll hold it for me for a while." Banker says: "We'd be happy to hold it for a while. How long until you need it back?" The fellow says, "I'll be back in six months." My guy says: "Fine. I'll tell you what. If you don't need it for six months and don't ask for it for six months, I'll give you the gold and an extra nugget for letting me use it while you're away."
Ten minutes later, another fellow comes up and ties his mule to the same post. He walks into the bank, the same banker. He throws down a bag of corn seed. He says, "I have this seed. I have this mule out here. Out yonder, I want to buy some land. I need gold nuggets to buy the land. Can I borrow some gold nuggets?" The banker looks the fellow in the eye, shakes his hand, and the deal's done. He says, "Before I give you the gold, though, I need to share in your success, so when you bring that back, I need the whole bag of gold and I need two extra nuggets. One for me, and one for the bank to pass along to the original owner." And he says, "That's fine, I'll be back in five months and three weeks."
I just described banking to you the way you should remember it, forever.
WHY U.S. BANK HALTED STUDENT LENDING
We're not indentured servants to do everything for free. The guy didn't give the gold without a guarantee that it would be there when he came back. And the banker asked permission to use it while he was gone with the promise to give him more for the service. It was done for a profit. We are not at the whims of doing things for free.
In April of last year, U.S. Bank got out of the student lending business. Lock, stock, and barrel. All in one day. And I did it because, for my shareholders, I feel that it's the next moral hazard coming our way.
I can see well-intended people in legislative roles who would say, you know, "The people who have these amazing outstanding debts for having gone to four-year colleges, it's outrageous - they shouldn't have to pay that much. And in this recession, they didn't get the job they went to school for, so whoever's holding the debt, give it back, forgive it or reduce it."
THE DANGER OF GOOD INTENTIONS
The reputation of banking continues to be a struggle, particularly since the global meltdown a few years ago. This crisis was not just local, and it wasn't like those in the past domestically, where it might have been commercial real estate, it might have been housing. This was a global, complete, everybody-fell-apart circumstance.
Every single governor of every single area of the world in the last few years has wanted to say, "Under my watch, the bank here will not do bad again." And that's very noble, and it makes a lot of sense.
But what's happened was, kind of as a pendulum swings, we have more and more circumstances where well-intended people aren't exactly sure what they're investing with as it relates to the future of the economy and its importance.
We have to do a better job of describing to well-intended and, God knows, patriots, politicians - you need to allow us to tell our story better so you'll appreciate how important we are to your community.
TO RECOVER, ECONOMY NEEDS LENDING
Here's why the story matters the most: 1 to 7.
That's the leverage that a bank, a healthy bank, can provide to the economy.
The bag of gold can actually do seven fields of corn. And that's the leverage you cannot pass. You cannot miss that in your recovery, because the economy is desperate for that leverage.
The banks in this room, if their batting average is lower than 98.75 percent, they're out of business. We are only able to be wrong a little more than 1 percent before we are done.
And so you appreciate why we need to be very careful with dream makers who have a good idea, but is it ready yet? Is it thought through yet? Is it safe enough? Because we've got to get that money back. We owe it to somebody who brought it in earlier.
But we can do 1 to 7. Some of your investment banks were like 1 to 30 before the downturn. Everyone's back to this place now.
WHY THE FED'S EASING ISN'T HELPING GROWTH
And then you get to the intersection of politics and financial situations and banking. QE3 is a great example. I'm against QE3. QE3 is a follow-up to QE1 and QE2. Here's what I thought was dangerous about them.
QE1, 2, and 3 were all about purchases and keeping interest rates low. There's a side issue, though. QE1 for the first time in the modern history of the Federal Reserve, this Federal Reserve board declared how long interest rates would be low. And wouldn't you know that [with] QE2, they moved the date out, date specific to what quarter, what year. And QE3, further into date specificity into 2015.
If you are a business executive, if you're a CEO in an environment like this, where interest rates are record low for record duration and there's only one way to go but up eventually, this Fed has given you reason to believe that it won't happen for a couple of years.
So the CEOs are not walking down the hall and the CFO says, "Hey, listen. Rates are record low. Who knows when they're going to go up? It could be any minute. Let's buy it, build it, adjust it, acquire it." They're not doing that yet, because they're thinking, "I don't need to yet. The rates are going to be low."
If I told you, you had 30 minutes to your next appointment, you'd feel differently than if I told you, you had 2 minutes to your next appointment. And if I told you your next appointment isn't until tomorrow, you'd feel different altogether. So the anticipation, and sometimes not always knowing, is the catalyst for us to take action.
What we are looking forward to is that QE3 is probably the last QE.
We need to get people to move again.