ABA Banking Journal - January 2008 - (Page 4) Editor’s Column WILLIAM W. STREETER Editor-in-Chief Banking ABA JOURNAL USPS-544-030 JANUARY 2008, VOL. C, NO. 1 Editorial and Executive Offices: 345 Hudson Street, New York, N.Y. 10014-7115 Phone: (212) 620-7210 Fax: (212) 633-1165 E-mail: ababj@sbpub.com Internet: http://www.ababj.com Published monthly for the American Bankers Association by Simmons-Boardman Publishing Corp. and copyrighted 2007 by ABA; Edward L. Yingling, President, 1120 Connecticut Ave., N.W.,Washington, D.C. 20036, (202) 663-5000. Title registered in U.S. Patent Office. With the exception of official Association announcements, the American Bankers Association disclaims responsibility for opinions expressed and statements made in articles or advertisements published in ABA Banking Journal. Confidence needs to be led WHAT A FRAGILE THING confidence is. Events of the past six months have seen it coalesce and evaporate several times. Within banking’s ranks, counterparty confidence has been badly shaken. This is what keeps central bankers awake at night. But then that is their primary reason for being, because the workings of economies and, indeed, governments, hinge upon trust and confidence. There is a delicate balance between caution and fear, and all of us can talk ourselves into a bigger problem than the facts support. Beneath our thin veneer of prosperity-induced confidence lies fear of losing that prosperity and ultimately a fear of destitution, chaos, and the unknown. This is hardly surprising, yet it can, and often does become, a self-fulfilling prophecy. With any group, whether it be 300 Spartans holding off a million Persians at Thermopylae or a group of central bankers trying to keep a global financial community from bolting, trust is a matter of individual decisions. But these decisions are often influenced by events, peers, crowds, or a persuasive and strong leader. Such a leader can convince others the best chance for survival or success is in overcoming fears and having confidence that together they can overcome the onslaught. Or, as Ben Franklin put it to his fellow revolutionaries, “We must hang together, gentlemen else, we shall most assuredly hang separately.” In our world of rapid communications, the difficulty of shoring up confidence is magnified. No one person can keep markets from imploding into a recession. Credit crunches—a part of that implosion—result sometimes from misguided policies, but more typically they are the result of a risk retrenchment following a period of a Gordon Gecko-like “risk is good!” exuberance and the inevitable comeuppance. But, as we know in our rational minds, a mass retrenchment only serves to create a crisis, where before there had been a correction—in this case, in a relatively small, financial market segment. And so now it is that the retrenchment is in danger of becoming a full flood, which has policymakers concerned. In becoming cautious, bankers are not acting out of self-interest—well, not solely out of self-interest, at least; there is the matter of keeping one’s job—but there is also the matter of looking after the interests of shareholders, customers, and employees, not to mention regulators. So when officials, economists, pundits, other bankers, and regulators call on bankers to keep lending, and not to roll back underwriting standards too far, there are nods and words of agreement, but the actions often answer to a different call. Let’s face it, if a bank gets in trouble, no one will remember, or care, that it was keeping the money gates open for the national economy. To do their part, lenders need cover. Nowadays, no single CEO has the clout of a J.P. Morgan (the man), so the Fed and other leaders must work with bankers to keep credit flowing. Talk is not enough, on either side. Those calling for liquidity must put money and policies where their mouth is. The Fed’s term auction facility meets that test. Also needed is reassurance that examiners will not hang bankers out to dry. Lenders, for their part, need to cough up the money. Confidence, like string, can’t be pushed. It must be pulled—by actions. bstreeter@sbpub.com Editor-in-Chief Executive Editor Senior Editor Editorial Assistant Art Director Associate Art Director Art Production Manager Contributing Editors Leslie T. Callaway Lucy Griffin Kenneth Kehrer Orla O’Sullivan Advisory Committee Jeffrey S. Owen Production Director Circulation Director Publisher William W. Streeter bstreeter@sbpub.com Steve Cocheo scocheo@sbpub.com Lauren Bielski lbielski@sbpub.com Andrea Rovira arovira@sbpub.com Wendy Williams wwilliams@sbpub.com Phil Desiere pdesiere@sbpub.com Todd M. Blanchard tblanchard@sbpub.com Ed Blount Nancy Derr-Castiglione Karen Kahler Holliday Bill Orr Lisa Valentine Edward L. 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