Banking Law

Quick Hit Re: Accountability

Tonight, I only have a brief moment to point you to an intriguing post by a young blogger who continues to intrigue me: Emily Flitter of BankThink. In her e-mails to me, she seems to take the position that she's got a lot to learn about banking and bank law. If that's true, she's got a great head start up the learning curve, because she's an astute observer of the way things work in the regulatory arena and in life.

Her latest post discusses a recent survey by Grant Thornton LLP of bank excutives, in which the executives were asked to rank the various causes of the subprime mortgage mess in order of their importance. The results were definitely not what the average Joe Sixpack might have expected in a world where everyone's a victim and the cause is always the other guy.

So what do the bankers, those on the frontlines of the crisis, think? Grant Thornton LLP says in a survey of bank executives it did with Bank Director magazine that more than anything else they blame ?lax underwriting standards.?

That?s right, Congress: While you bickered about which party hobbled GSE reform efforts, bankers were owning up to their mistakes. Executives responding to the survey could select up to three potential causes from a list of 11 options. Most often they chose to fault underwriting standards.

Just as interesting (at least to me) was the view of bank executives that "mark-to-market" accounting is not a major problem.

Though the American Bankers Association and other industry groups have vociferously criticized mark-to-market accounting, banking executives indicated that they did not see the practice as a major cause of the crisis. ?I think bankers understand that fair value accounting affects only a portion of the balance sheet and by itself it did not cause the current crisis,? Dorsey Baskin, a partner in Grant Thornton?s National Professional Standards Group, said in a press release announcing the survey results.

Who would have thought that there might be a group of business leaders who "own up" to their faults and reject scapegoats, or, even more amazing, that those executives would be bankers?

Ms. Flitter's recognition of the contrast between the way businessmen evaluate reality and the way politicians evaluate it bodes well for her future. When you're a reporter who has to parse the nuances at the intersection of banking and politics, a jaundiced eye might often offer the best vision.

Full post as published by Bank Lawyers Blog on January 15, 2009 (boomark / email).