Interview: Richard Davis

Editor's Note: John Barlow, president of Barlow Research Associates in Minneapolis, interviewed U.S. Bancorp president and CEO Richard Davis on March 15. Following are edited excerpts from that interview. U.S. Bancorp., based in Minneapolis, has $281 billion in assets and nearly 3,000 branches in 25 states. .Q. The financial crisis affected us all. How has that experience changed the way you manage?.A. It changes the way all of us think about what is certain. You never quite know anymore that what you know is for sure. You tend to become a little better at stress testing. You become a lot more circumspect about whether activities are independent. We've done a better job of holistically managing the company. And it has changed my views of how to communicate. We assume nothing now. We don't assume that anyone else knows what we know unless we tell them what we know. .Q. If you had to write a book about the last two years, who would be the hero of the book?.A. It would be the bankers, the tried and true people working in the branches, working in middle market, working in small business, doing their job no matter what the outside influences are. They were always doing the right thing; they are still doing the right thing, despite the fact that folks at the highest levels of the industry could have done a better job. .Q. What do you hope to result from the crisis?.A. If there is anything we get out of these next iterations of reg reform I hope it's wind-down authority and systemic oversight. The American people deserve to know that is in place. Nobody is too big to fail. We aren't and nobody should be. The oversight of those systemically important companies should be stronger, greater, more frequent, and more obvious than other banks. And the rules should be set so both the shareholders and the managers know what will occur when a company starts to falter. It should be very clear and very defined. Left on the table, however, is the question of whether this is a pre-funded activity or post-funded. I'll leave that to other people to decide but we will deal with whatever is decided. .Q. What opportunity do you see for U.S. Bank going forward?.A. We have enjoyed a flight to quality in the last couple of years, which was, quite frankly, unexpected … Flight to quality is basically code for getting to see and meet people you never had a chance to see and meet before..We are still saying no to the high-risk borrower; we were doing that before the crisis. But it is different today because before they would leave in a huff and go across the street. Now we have the benefit of not having them go across the street and saying, "see, I can get a loan." That's gone now. .Q. How important is mobile banking and some of the newer product delivery channels?.A. Banks don't really have the option to opt-out of a channel. Every time there is a new channel we need to adopt it, and we don't erase any of the other ones. As long as customers want all of it, we need to be there offering all of it. This is an important paradigm because it means banking doesn't get cheaper over time as channels mature or atrophy. It actually get's more expensive. Therefore, we need to be more efficient or we can't offset those additional costs..Back in 1985 when I was running a branch, I remember the advent of the ATMs and the call centers. Those both came at the same time. We were told "get another job because branches will be gone by 2000." Today, there are more branches than there were by far in 2000 and there are more now than there were 10 years ago..A couple of years ago, I would have said that technology is serving as a loss leader to enable the other channels to be better. In the last year or two — with viral banking, mobile banking — for the first time I have decided it is no longer a loss leader. It is a flat out expense with an investment attached to it. This is the way that some people always do their banking. It won't be the attribute of another channel; it will be the channel itself. .Q. Closing thoughts?.A. Banking is back, baby. In a couple of years when everything is behind us this is going to be the best business ever. It is going to be stronger than it was going in. Now the cost of doing banking will be higher. Shareholders will notice that the cost of holding capital is higher, loan loss reserves will be at higher levels, and paying into the insurance fund will probably be a reality for the rest of a generation. These factors will take down some of the near-term profitability, but the value of the industry will go up because the Armageddon scenario has been erased. Those actions will cause investors to feel better about banks.