Robert G. Wilmers believes it is time for a “healthier dialogue” between bankers and regulators, as the banks “not among the ranks of giants” feel the effects of expanded regulations.
M&T Bank Corp.’s chairman and CEO, in his annual letter to shareholders, said “a handful of banks, but not all, played a pivotal role” in the U.S. financial crisis several years ago. But he said the resulting wave of regulation has impacted banks of all sizes and led to unintended consequences.
“Though small and midsized banks played little, if any, role in the crisis, they have been swept into this vast change, and the resulting disproportionate burden is distracting them from their traditional focus on servicing local families, businesses and farmers,” Wilmers said.
“Despite a shared objective of maintaining the safety and soundness of the financial system, today’s banking environment is typified by a relationship between institutions and governing agencies that is less than collaborative – a product, it seems, of a political atmosphere where pressure remains upon banks to prove themselves reformed,” he wrote.
Wilmers’ annual letter attracts attention beyond its direct audience of M&T’s shareholders for his comments on everything from the banking industry to regulation to the local economy. Wilmers has previously sought to distinguish “Main Street” banks such as M&T from “Wall Street” banks, saying Wall Street banks have more-complex business models.
One of his themes this year was small businesses, which Wilmers said “have not fully recovered from the recession.” Employment at small businesses was 1.5 percent below their 2007 peak “and sentiments are further dampened by sluggish sales growth since the recession,” he said.
And millennials, who are “would-be entrepreneurs,” are “ill-equipped to secure the capital needed for business formation,” Wilmers said. Millennials are struggling under the weight of heavy student loan debt, he said, and the net worth of those under 30 years old has fallen by nearly half since 2007.
Beyond the numbers, Wilmers said it was essential to ensure the next generation of small-business owners – who also emerge as local leaders – are financially capable of stepping forward. “This is a problem the banking industry can help solve provided it gets back to doing what it does best and endeavors to remove barriers to small-business entry while reinvigorating the American entrepreneurial spirit,” he wrote.
Wilmers said “much – indeed too much – of our public discussion about banks and banking today looks back in anger.” Neither fines, sanctions nor regulatory action have restored trust, he said.
“Today we face a turning point,” he said. “Will we continue to look for villains to punish or will we take steps that will enable banks to serve again as agents of an expanding prosperity?”
Elsewhere in his letter, Wilmers recounted M&T’s experience in building up its compliance systems, after federal regulators found shortcomings which delayed approval of M&T’s deal for Hudson City Bancorp. M&T had “come to learn – the hard way – that the task of catching up is far more costly than simply keeping pace,” he said. “This is a lesson we have embraced and will not readily forget.”
Some examples Wilmers cited of compliance costs at the bank:
• Since 2013, M&T has engaged 12 consulting firms at a total cost of $178 million.
• The team handling the bank’s anti-money-laundering program, consumer and corporate compliance, as well as capital planning, stress testing and other risk management areas increased to 807 from 128.
• M&T’s overall cost of compliance peaked at $441 million in 2014, and declined to $432 million in 2015.