Emerging Markets: Central banks want markets to be liquid as they normalise interest rate policy, but have regulators made liquidity impossible?
Brian Moynihan: We don’t know. We’ve seen evidence of cases when there’s volatility in markets, caused by something, and the question is whether lack of liquidity is doing it.
I think it is a concern, because banks can’t do quite what we did before and we have to be more careful. But that was an intended outcome.
The question is whether this will also affect securities like mortgage-backed securities or government bonds, because of the leverage ratio. I think it may not be as concerning if the Fed changes policy slowly.
Which regulations are you lobbying to change?
That sounds like we’re trying to go back to a world that was. That’s not at all true. As an industry we have a good dialogue among ourselves, and with the regulators, trying to make sure they understand where unintended consequences come out, and is there a better or different way to accomplish the same purpose.
But are there any particular rules you’re having to take extra time over and perhaps go back to the regulators?
Some of them aren’t even rules. They’re proposed rules. TLAC (total loss-absorbing capital) is not official yet, so you can’t reach conclusions, but I think things like Volcker in the US and the resolution planning regimes are also in this category. We’ve submitted another set of resolution plans that we’ve spent hundreds of millions of dollars and lots of time on, which we believe met all the guidance we were given, and we’re going to hear back on that some time in the fall or later.
What’s your view on the leverage cap for loans of six times Ebitda?
We’re compliant with it and the rule is the rule, there’s no debate about it. Leverage has fallen dramatically with the more traditional banks.
But our view on a lot of these rules is they’ve got to apply to everybody. I don’t think they’ve got there yet. In the US, you have non-regulated players, the so-called shadow banks, and internationally those rules are different.
If we pick the appropriate speed limit on the highway, we shouldn’t have people being able to choose what speed drive, because of what car they’re in.
In Europe it looks as if US banks are structurally advantaged by regulation.
There’s a more nuanced way to look at that. What some of the things people are trying to do in Europe is put in structures that the US has always had: the holding company bank, a ringfenced broker-dealer. It’s the way we’ve done the business for years because they were asunder, and were put together only in the last 25, 30 years. So if you ask the average banker on this side of the ocean, they believe that the rules are probably a bit more stringent here.
But it’ll shake out as the structures become more in line with each other. The companies will look not exactly alike, but more alike.
The potential of things like blockchain or distributed ledger technology in finance, is that a threat?
I think it’s actually a great opportunity for our industry. There is quite a large group of us working together to figure out how to use it, the authenticated, distributed public ledger type of applications, blockchain being one of them — to facilitate faster payments or securities clearance. We’re all working together to figure out how to apply it.
What does a low oil price do to US energy finance, especially shale explorers?
We’ve disclosed our portfolios. Our exposures to the group that’s most under pressure from low prices is very manageable and relatively small, but we’ve seen these companies adapt quite strongly — it’s been interesting to watch. As oil prices have stabilised, even at a lower level, it’s been quite remarkable how they’ve been able to stabilise their businesses.
There’s no part of our portfolio which creates great heartburn for us. Last quarter we made some adjustments.
Do you think the fears about the Chinese economy are overdone?
Our analyst experts still believe the Chinese economy will grow fairly well, something like 6.8% in 2016. They’re confident on China over the long term. It’s just going through a period of adjustment and that’s causing adjustment throughout the market. We adjust our business plan, but these are a couple of months in the context of a 50 to 100 year strategy that our company is on and there will always be things we have to adjust over the long term.
You’re the CEO of a bank in an industry that has paid a lot of fines. What would your advice be, from one CEO to another, to the new CEO of Volkswagen, on how to deal with what lies ahead for him?
I certainly can’t advise on the underlying issues which I don’t follow that closely. But my advice to anybody when they face a tough problem like this is: be focused on why you’re here, to serve customers, because that gives you the courage to get through the issue of the moment.
When we faced the situation we had to face, the way we kept our people focused was to say ‘Why do you come to work every day? You’re here for the customers, you’re here for your teammates and then you’re here to create value for the shareholders. That’s going to be tough when we’re going through the charges, but keep focused on the first one, because at the end of the day, that will hold you in good stead.’
And our team did a wonderful job and that’s why you see the business growing, even during the times when people thought we weren’t, and that was partnership.