CHAIRMAN DONALD E. POWELL
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS PREPARED FOR DELIVERY TO THE
AMERICAN BANKERS ASSOCIATION
WAIKOLOA, HAWAII
SEPTEMBER 21, 2003
FOR IMMEDIATE RELEASE Media Contact
PR-91-2003 (9-22-2003) Frank Gresock (202) 898-6634
Good afternoon. Thank you for your kind offer to come visit with you today. It is a
pleasure to see so many familiar faces and I also appreciate the opportunity to meet
new friends.
It is appropriate that we're meeting this year in such a wonderful island location
because, in many respects, the banking industry has been an island of growth and
prosperity in recent years, compared with the difficulties and hardships suffered by so
many sectors of the broader economy. It is especially nice when we consider the
hardships our industry suffered just over a decade ago. We have truly been blessed and
I know that you - and indeed all of us who lived through that time - appreciate the fact
that the past few years could have been much, much worse.
You have led a charmed life. Because of your prudent and conservative banking
strategies, and the hard lessons learned in the crisis, you have enjoyed more than a
decade now of return on assets of more than one percent. Banking assets have nearly
doubled in that time, and non-interest income has tripled. The industry remains far
better capitalized than it was a decade ago. And while the recent reversal of fortunes in
corporate America took its toll on credit quality, it caused barely a hiccup in your
earnings. Indeed, you made more money last year, as an industry, than in any year in
history. You made nearly $60 billion in the first six months of this year. And the second
quarter of 2003 saw the lowest number of unprofitable institutions in more than five
years.
There is more good news where that came from. Banks have revolutionized the
customer service platform, seizing on new technologies to provide a level of service and
convenience to customers we could only dream about when I started in the business 30
years ago. The industry has shown tremendous competence in asset/liability
management, improved your access to the capital markets for capital and funding,
diversified your income stream, and shown greater ability to control and manage the risk
on your balance sheets. These are cultural changes in the business of banking that will
provide benefits for years to come.
Indeed, it is truly a remarkable time for our industry and you are to be commended. It is
important - critical - however, that none of us, either on the business or the regulatory
FEDERAL DEPOSIT INSURANCE CORPORATION
REMARKS PREPARED FOR DELIVERY TO THE
AMERICAN BANKERS ASSOCIATION
WAIKOLOA, HAWAII
SEPTEMBER 21, 2003
FOR IMMEDIATE RELEASE Media Contact
PR-91-2003 (9-22-2003) Frank Gresock (202) 898-6634
Good afternoon. Thank you for your kind offer to come visit with you today. It is a
pleasure to see so many familiar faces and I also appreciate the opportunity to meet
new friends.
It is appropriate that we're meeting this year in such a wonderful island location
because, in many respects, the banking industry has been an island of growth and
prosperity in recent years, compared with the difficulties and hardships suffered by so
many sectors of the broader economy. It is especially nice when we consider the
hardships our industry suffered just over a decade ago. We have truly been blessed and
I know that you - and indeed all of us who lived through that time - appreciate the fact
that the past few years could have been much, much worse.
You have led a charmed life. Because of your prudent and conservative banking
strategies, and the hard lessons learned in the crisis, you have enjoyed more than a
decade now of return on assets of more than one percent. Banking assets have nearly
doubled in that time, and non-interest income has tripled. The industry remains far
better capitalized than it was a decade ago. And while the recent reversal of fortunes in
corporate America took its toll on credit quality, it caused barely a hiccup in your
earnings. Indeed, you made more money last year, as an industry, than in any year in
history. You made nearly $60 billion in the first six months of this year. And the second
quarter of 2003 saw the lowest number of unprofitable institutions in more than five
years.
There is more good news where that came from. Banks have revolutionized the
customer service platform, seizing on new technologies to provide a level of service and
convenience to customers we could only dream about when I started in the business 30
years ago. The industry has shown tremendous competence in asset/liability
management, improved your access to the capital markets for capital and funding,
diversified your income stream, and shown greater ability to control and manage the risk
on your balance sheets. These are cultural changes in the business of banking that will
provide benefits for years to come.
Indeed, it is truly a remarkable time for our industry and you are to be commended. It is
important - critical - however, that none of us, either on the business or the regulatory
side, be guilty of overconfidence as a result of these positive developments. We must
be on our guard always against the siren song of invincibility, against the tempting belief
that the good times we enjoy today will always last.
And that's what I want to discuss with you today. It is important to remain vigilant. It is
important because you - and your regulators, your shareholders, and your customers -
want the good times to last. And it is important to be vigilant because the graveyard of
corporate America is littered with companies and sectors that were once ten feet tall
and bulletproof. Andrew Grove, the chief of Intel, once wrote a book called Only the
Paranoid Survive, which contains a quote that sums up, in my view, what you need to
be considering during this period of prosperity:
"Business success contains the seeds of its own destruction. The more successful you
are, the more people want a chunk of your business, and then another chunk, and then
another, until there is nothing left."
My father had a simpler expression to capture the same concept: "There is a big
enough paddle to get anybody."
A few examples come to mind. AT&T once had a near monopolist position in a highly
regulated industry. They controlled most aspects of their business from the phone on
the wall (remember when you used to rent them from the phone company?) to the
switches and lines and directories. They laid the first trans-oceanic cables, they
pioneered the development of cellular telephones and launched communications
satellites. But the unexpected happened. A court order broke up the Bell system on
New Year's Day 1984. AT&T suddenly found itself a much smaller company in a world
of continual change. New competitors and new technologies began further slicing into
market share and cutting the price of long distance service. The company responded by
constantly trying to add or spin off units in an attempt to regain a leadership position.
How many of their pioneering technologies and the businesses they created are now
dominated by other firms? But the fact remains that the foundation of their profitability -
long distance service - has become a commodity that has not yet stopped falling in
price.
Other examples are equally relevant to our discussion here today. The
telecommunications industry, once the target of innovators and tremendous venture
capital funding, now struggles under the twin burdens of bankruptcy and overcapacity.
IBM, once a titan in the world of personal and business computing, has undergone a
lengthy and difficult restructuring to once again achieve a position of dominance -
although in a business very different than it was 25 years ago. Pan-Am, once one of the
most celebrated and exotic names in aviation, did not survive the shift into an era of
deregulated airlines. Just three years ago, one of the most respected names in the
accounting profession was Arthur Andersen.
You could probably name ten more companies that were forced by the marketplace to
reconfigure their business plans - or close their doors forever. They were all victims, in
one way or another, of unexpected events, unplanned-for trends, and surprise twists in
the marketplace. The difference, really, between those who survive and those who don't
be on our guard always against the siren song of invincibility, against the tempting belief
that the good times we enjoy today will always last.
And that's what I want to discuss with you today. It is important to remain vigilant. It is
important because you - and your regulators, your shareholders, and your customers -
want the good times to last. And it is important to be vigilant because the graveyard of
corporate America is littered with companies and sectors that were once ten feet tall
and bulletproof. Andrew Grove, the chief of Intel, once wrote a book called Only the
Paranoid Survive, which contains a quote that sums up, in my view, what you need to
be considering during this period of prosperity:
"Business success contains the seeds of its own destruction. The more successful you
are, the more people want a chunk of your business, and then another chunk, and then
another, until there is nothing left."
My father had a simpler expression to capture the same concept: "There is a big
enough paddle to get anybody."
A few examples come to mind. AT&T once had a near monopolist position in a highly
regulated industry. They controlled most aspects of their business from the phone on
the wall (remember when you used to rent them from the phone company?) to the
switches and lines and directories. They laid the first trans-oceanic cables, they
pioneered the development of cellular telephones and launched communications
satellites. But the unexpected happened. A court order broke up the Bell system on
New Year's Day 1984. AT&T suddenly found itself a much smaller company in a world
of continual change. New competitors and new technologies began further slicing into
market share and cutting the price of long distance service. The company responded by
constantly trying to add or spin off units in an attempt to regain a leadership position.
How many of their pioneering technologies and the businesses they created are now
dominated by other firms? But the fact remains that the foundation of their profitability -
long distance service - has become a commodity that has not yet stopped falling in
price.
Other examples are equally relevant to our discussion here today. The
telecommunications industry, once the target of innovators and tremendous venture
capital funding, now struggles under the twin burdens of bankruptcy and overcapacity.
IBM, once a titan in the world of personal and business computing, has undergone a
lengthy and difficult restructuring to once again achieve a position of dominance -
although in a business very different than it was 25 years ago. Pan-Am, once one of the
most celebrated and exotic names in aviation, did not survive the shift into an era of
deregulated airlines. Just three years ago, one of the most respected names in the
accounting profession was Arthur Andersen.
You could probably name ten more companies that were forced by the marketplace to
reconfigure their business plans - or close their doors forever. They were all victims, in
one way or another, of unexpected events, unplanned-for trends, and surprise twists in
the marketplace. The difference, really, between those who survive and those who don't