These comments by Robert Wilmers, CEO of M&T Bank, slipped by me earlier this year, but were seen recently on My Investing Notebook. Wilmers has been very vocal about the dangers of the Wall Street casino in recent years, but these comments were particularly spot-on. Wilmers is increasingly concerned that Wall Street and the banking sector have lost site of their real economic purpose. Instead of greasing the engines of capitalism (by lending money to capitalists) they have become the casino that is legally allowed to cannibalize its own customers for their own benefit.
Wilmers believes the recent regulatory bill does nothing to fix the problems that caused the recent crisis and sees most of our problems as being entirely unfixed. Wilmers concerns aren’t interesting because they’re original (I’ve been repeating all of this for years now), but because he is the CEO of a rather large bank:
“Saying that we at M&T feel that we have put the worst effects of the financial crisis behind us should not be understood as meaning that the financial services industry broadly defined has returned to a safe and sustainable condition—one in which it plays its traditional central role of providing the oxygen of credit to American commerce. One cannot be that sanguine about matters when looking back on a two-year period in which 297 U.S. banks and thrifts were forced out of business. It is true that our system of deposit insurance and regulatory oversight ensures that such failures can be handled in an orderly fashion. I cannot help but note, however, that, even as the financial crisis slowly recedes, our overall financial services industry continues to be characterized by attributes which contributed to that crisis—characteristics which distinguish it from traditional banking, which impose burdens on those banks (such as M&T) that pursue a traditional approach and which pose significant risks to the long-term health of the American economy.
Specifically, I am concerned about a powerful combination of factors: increased concentration in the financial services sector, where profits are driven by how well one trades rather than the prudent extension of credit that furthers commerce; a resulting outsized-compensation system which disproportionately draws talents away not just from traditional banking but other professions crucial to economic growth; a government regulatory regime which both enables what I have described as this “virtual casino” to continue, notwithstanding its role in precipitating the financial crisis—and which, by not recognizing the difference between Main Street and Wall Street banks, financially burdens the “real economy.”
His entire commentary can be found here. It’s an excellent read….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.