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Looking forward by looking backward

Ethics and trust demand renewed vigilance

Looking forward by looking backward

Every once in a while I’m bothered by insomnia. I used to lie in bed and fret and fume. But now I often rise and read emails or prowl around on Facebook.

(I don’t tell anyone that I’m on Facebook fairly regularly, as I wouldn’t want anyone, especially my grown kids, to expect anything from me—or to start sending me inane posts and pictures.)

What I often do is search for former colleagues. I had a boss in Florida that I appreciated more after we were no longer working together and I’d actually like to reestablish contact and find out how he and his family are doing.

Haven’t found him yet, but what I have found has made me very thoughtful of late.

Good, bad, and ugly

My forays have turned up a mixed bag.

There’s one former colleague on the lending platform who was from a wealthy banking family. We had all thought that he’d ultimately return to the family’s banking business and assume a suitably senior title and await management succession.

Sadly, I actually found him, I believe, a couple of years ago—not on Facebook but rather in a Google search. To my amazement it appears he became a convicted felon—embezzlement from a nonprofit. If this truly was him, I’m shocked—he was the last person that I’d have thought capable of doing something like that.

I’ve had one or two other surprises like that, in my internet trolling.

Much of the time, my old colleages have turned out fine. Most are still working productively or retired into useful endeavors. One has become a successful novelist in retirement. Another is retiring this year as chief lender in a large regional bank. There’s also one whom I always thought was a loudmouth, but he managed to climb to the top echelon of a major regional banking company. (“Go figure that,” I said to myself. “He did OK in the end.”)

Another former colleague received a presidential pardon. That gets your attention.

All in all, food for further reflection.

Time for a cold look at ourselves

In making sense of what I learned, the surprises as well as the predictable knowledge of the majority of respectable and successful former banking colleagues, my thoughts inevitably return to the state of ethics of our business. Banking had always been to me a profession where the trust component was high for obvious and necessary reasons.

My confidence in the strong expectation of high standards of conduct by bankers has been shaken the last few years by the sheer weight of reported misdeeds. What possessed them to do such things? Why did they go off track? It’s impossible to believe that they not know better. Was there some cultural disconnect that lured them down the wrong path?

This has credit implications. As a credit administrator, I concluded many years ago that a strong credit policy isn’t enough to assure a sound credit portfolio. It takes in the final analysis a determination by executive management to establish and enforce comprehensive internal controls.

This is part of the making of banking culture, friends.

Any person involved in the “back office” of credit has had to deal with the pushy young vice-president who constantly seeks processing exceptions for his “important” borrowing customers. Maybe it’s the missing piece of required loan documentation to get the loan funded or maybe it’s the missing personal guaranty form. It’s always something, for such fellows, and it’s got to be done right now.

How far do we bend the rules before the wrong signals spread among staff?

Sen. Claire McCaskill (D-Mo.), in a hearing on sexual harassment in the military a year or more ago upbraided a much decorated Pentagon official who emphasized as his solution to the problem a program of additional training.

“No, general,” Senator McCaskill retorted. “We need to make examples of those people who violate the rules. Training won’t do that.”

By analogy, a Conflict of Interests Policy or a Corporate Ethics manual is like the credit policy. Every positive statement of intent or action needs to be supported by sanctions—and the will to enforce them.

I served out the balance of my military reserve obligation in the 42nd Infantry Division (Rainbow) in New York. One of my close friends from that experience was a man about 10 years older than I who had risen to the level of Lieutenant in the New York Fire Department. He had personally concluded that a behavioral divide existed between men born before World War II and those born after. To him, the respective attitudes toward situational ethics and personal responsibility were often profoundly different between those two cohorts.

As I think back on our talks about this, I think how reminiscent this sounds of the generational distinctions frequently discussed regarding Boomers, GenXers, Millennials, etc.

We can do better

Personally, I think that the behaviors of some—perhaps too many—in our industry have been disgraceful. Reforms have got to come before bankers regain the respect and trust of their principal constituents. It has to start someplace and it’s a further comment on the state of our industry when we find the compliance people in the vanguard of such efforts.

I’m hopeful, though, that we’ll find our way through this. But it takes both a personal commitment to ethical norms as well as an institutional will to form the right sort of internal climate.

This is another way of saying “culture.” 

If executive management and the directors can’t or won’t do it, it will be done to us by activist shareholders. Alternatively, regulators concerned that reputation risk can inflict systemic damage and real harm to the industry.

That’s a sad commentary on a once proud industry. How do we change that?

We have to be the ones to do it.

Ed O’Leary

Banking Exchange Contributing Editor Ed O'Leary, a veteran lender and workout expert, spent nearly 50 years in bank commercial credit and related functions, working with both major banks as well as community banking institutions. His last job before retiring was as the CEO of a regional bank headquartered in Alburquerque, N.M. He earned his workout spurs in the dark days of the 1980s and early 1990s in both oil patch and commercial real estate lending. O'Leary began his banking career at The Bank of New York in 1964, and worked at banks in Florida, Texas, Oklahoma, and New Mexico. He served as a faculty member and thesis advisor at ABA's Stonier Graduate School of Banking for more than two decades, and served as long as a faculty member for ABA's undergraduate and graduate commercial lending schools. Today he works as a consultant and expert witness, and serves as instructor for ABA e-learning courses. You can e-mail him at [email protected]. O'Leary's website can be found at

In mid-2016 O'Leary's "Talking Credit" blog received a bronze excellence award for the Northeastern Region from the American Society of Business Publication Editors.

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