Bank of America (NYSE:BAC) CEO Brian Moynihan wrote in a opinion piece for the Charlotte Observer that he was looking for a balance between foundational stability and innovative growth for the company, acknowledging that unchecked innovation had been part of the problem for the bank over the last couple of years.
Moynihan rightly stated that the banking industry evolved from a conservative slow-growth industry to one where growth became the standard, which of course led to all types of excesses and risk-taking.
Talking about the economic bubble bursting, Moynihan mentions the increase in profits, jobs and the ‘economic boom’ financed by the banking industry … “until it went bust,” he says. It was good to hear him admit that the pace of growth went way too far, and that it would have to change going forward if banks want to remain healthy.
Now that the banking industry has experienced the boom and bust, Moynihan is looking to find some middle ground where Bank of America will have a strong, stable foundation and grow at levels that are realistic and sustainable.
Moynihan offered four areas Bank of America and all banks need to take to ensure these things will happen. Those four are balance the need for credit with responsible lending, give people what they want, respond aggressively to the mortgage emergency and make sure banks never need government support again.
Concerning building a more conservative foundation, Moynihan offered several ideas, which while sounding obvious, weren’t that obvious to the banking industry, which largely ignored them for the sake of growth at any cost.
Three areas he identified were to build higher capital levels, lower the amount of leverage and to employ much more conservative underwriting practices.
Much of the growth in the industry came about from loose credit, and of course that was a major factor in creating the bubble which ultimately burst. Consequently, what again should have been an obvious practice – lending to only people and businesses which were credit-worthy – was abandoned in favor of putting up bigger numbers.
Their credit card business of Bank of America ended up in shambles as a consequence of these decisions.
Another important aspect of customer service Moynihan touched on was in giving customers what they wanted. As the fallout from the bubble bursting extended, it was obvious that the push to grow resulted in a large number of people being confused about their mortgages and other banking products, and didn’t fully understand the terms of ARMs in particular, which has caused so many to lose their homes or simply stop paying on the mortgages. Reckless attempts at growth also caused inconsistency in banking practice and complexity to the point where customers were clueless in many cases as to what they were responsible for.
Hidden fees were part of the confusion which resulted in an angry backlash at banks, who continue to hit them with them, even though many of their customers didn’t know they even had the service available to them; especially overdraft fees on checking accounts.
Moynihan concluded by saying he wants Bank of America to become the “finest financial services company,” and the way he said that will happen will be by “responding energetically to customers’ and clients’ needs while managing risk to stay strong through all economic cycles.”
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