Why Banks These Days Are So Excited About Being Boring

(Bloomberg Businessweek) -- In March, PNC Financial Services Group Inc. introduced TV ads and plastered signs across its branches arguing that it’s “brilliantly boring.” On an April conference call, Fifth Third Bancorp Chief Executive Officer Tim Spence boasted that the lender’s results were “boring.” And on April 25, Frank Namdar, chief credit officer of Columbia Banking System Inc., described his property loan portfolio as “really quite boring, which somebody like me loves to see.”.A year ago, as regional lenders found themselves thrust into the public spotlight, banking was anything but tedious. For an industry underpinned by trust—the belief that customers’ deposits will be safe—the rapid implosion of Silicon Valley Bank and two other large regional institutions offered a heart-stopping glimpse of a less-than-boring financial sector..In a few frenetic days in March 2023, SVB plummeted into receivership. Even as the government stepped in to guarantee all deposits at the troubled institutions beyond the normal insurance limits, investors recoiled and skittish consumers and corporations increasingly directed their business to behemoths like Bank of America, Citigroup and JPMorgan Chase. That set off intense competition among smaller lenders, who saw margins shrink as they increased the interest rates they paid on deposits to win new customers and retain existing ones..Now, regional banks are working to rebuild trust and explain all the ways they’re not like the high-flying companies that failed. And the industry is coalescing around a new image: stodgy, stuffy and dull. “Banking should be boring,” says Mike Mayo, a Wells Fargo & Co. analyst who’s covered the sector for decades. “It should be like turning on the faucet and seeing water run out.”.Bank executives and analysts have uttered the word “boring” at least a dozen times on conference calls this year, double the level of all of 2022, before the SVB meltdown. Throw in terms such as “cautious” and “conservative” and widen the lens on the tumult of last year, and you get to the most ardent embrace of the humdrum in a decade or more. In its TV spot, for instance, PNC tells viewers it’s so pedestrian and dependable that its customers don’t need to be. In a crisis, “banks that are boring and do their basic job tend to leapfrog the banks that are trying to be heroic in an industry that doesn’t need heroes,” says CEO William Demchak..PNC Bank CEO: Real Estate Not Risk for Bigger Banks" />In recent years, SVB had stood out as a thrilling growth machine. Its client list brimmed with ambitious startups rolling in venture capital cash, providing it with a vast pool of deposits. SVB loaned that money out to others or invested it in securities that were considered safe. But VCs pulled back in 2022, spurring startups to drain their balances just as inflation was taking off.The tension between these forces exploded as more and more clients pulled cash from the bank and SVB had to sell the securities at a loss. Then an attempt to raise capital fell apart as the stock plunged. Depositors yanked additional billions, and SVB collapsed into receivership. New York’s Signature Bank and San Francisco-based First Republic Bank, similarly plagued by fleeing depositors, soon suffered the same fate.Politicians and academics have long made the case that regulators should force banks to be as uninteresting as possible. In the wake of last year’s failures, Massachusetts Democratic Senator Elizabeth Warren told CNBC that she wanted banking to get back to “where it ought to be, and that is boring.” Lev Menand, an associate professor at Columbia Law School, says banks should be treated like utilities. But deregulation that began in the 1980s has allowed lenders to build nationwide networks and seek to supercharge profits with riskier bets on the market. “You don’t get up one day and worry that your electric utility company is going to fail,” Menand says. “It used to be like that with banks.”. Faith in banks typically ebbs and flows along with the perceived strength of the financial sector. An annual survey by Gallup, published last summer, shows it falling back toward the levels of the late aughts, when failures on Wall Street triggered the global financial crisis. As SVB circled the drain last year, online health-food retailer FarmboxRx frantically tried to pull millions from its account there, then soon emptied another—at the ill-fated First Republic. Today the company keeps its money at megalenders Wells Fargo and Bank of America Corp. “We’ve had two smaller banks fail on us,” says founder Ashley Tyrner. “We’ve definitely taken the too-big-to-fail route.”Customers, of course, never want to worry about their bank’s durability. And for investors, after watching once-skyrocketing regional banks collapse, a conservative lender’s steady dividends and dependable growth have a renewed appeal—exactly what some in the business have long stressed. “We are still boring,” Richard Davis, then CEO of U.S. Bancorp, told Bloomberg more than a decade ago. “Boring means we won’t get in and out of stuff we don’t know.”More stories like this are available on bloomberg.com©2024 Bloomberg L.P.

Why Banks These Days Are So Excited About Being Boring

A year after SVB’s failure, regional lenders have embraced stodginess as a virtue.

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