M&T Bank CEO Robert G. Wilmers couldn't believe the memo he got from another executive at the company about implementing just one small piece of last year's financial reform law.
The new formula required by the Dodd-Frank Act for calculating deposit-insurance premiums takes 18 M&T employees working on four committees to gather 60 different numbers, the memo said. They plug those figures into 20 separate equations to derive M&T's "performance score."
The performance score "is then divided by 100, cubed, added to .09 and multiplied by 42.735" to come up with what the bank owes the government for deposit coverage, the memo said.
Einstein expressed the general theory of relativity with considerably less fuss.
So Wilmers doesn't like Dodd-Frank. In that respect he's like many bankers. But the law's complexity isn't what makes him most unhappy.
For all its labyrinthine mass (850 pages), the measure doesn't fix three of the biggest flaws in the system and will probably fail to prevent another financial crisis, Wilmers says. That's a message you hear from guys like him much less often.
Reformers' focus has been "the banks caused this crisis and the world's in very tough shape, which I agree with," Wilmers said on the phone from M&T's Buffalo, N.Y., headquarters. (M&T is metro Baltimore's second-biggest bank by deposits.)
But Dodd-Frank, he added, "didn't solve the most important problems."
Take the bond-rating agencies, Standard & Poor's, Moody's and Fitch. "For the last 80 years they've been the gang that couldn't shoot straight," Wilmers said. They've repeatedly given blue-chip scores to terrible investments, from municipal debt in the Depression to mortgage securities in the 2000s, he said.
Yet Dodd-Frank left them with virtually the same power as before, with "oligopoly" market shares, huge profit margins and what Wilmers called a new role as "political pundits" in their commentary on U.S. and European sovereign bonds. (He's referring here especially to S&P and its downgrade of U.S. treasuries last month.)
"They've not only created the conditions which make possible casino-like financial gains and losses but inspired angst and uncertainty among the citizens of the nations impacted," Wilmers said in a speech last week, in which he expanded on this theme.
The soaring price of treasuries in the wake of S&P's downgrade suggests the agency got it wrong once again, he said.
"We cannot allow a group of organizations which have gotten so many important things wrong for so long … to continue unchallenged," he said in the speech, given to a Washington symposium sponsored by the American Banker, the financial daily.
Take Fannie Mae and Freddie Mac. I disagree with Wilmers' assessment that these "government-sponsored enterprises" were at the center of the subprime mortgage crisis. They got into the game relatively late, after Wall Street had already demonstrated how to loan billions to homebuyers who were unlikely to pay the money back.
But Fannie and Freddie will still probably cost taxpayers more than $300 billion before the mortgage crisis is resolved. And their hybrid status — in which shareholders get all the profit but taxpayers bear all the risk — has always been a problem. Wilmers is shocked that it's still business as usual, that Dodd-Frank basically ignored the problem.
No matter what you think about the companies, it's impossible to disagree with him when he says: "There has got to be a better way of dealing with Fannie and Freddie than not focusing on them."
Take the big Wall Street banks, which were most responsible for the financial crash. They seem to set off bankers like Wilmers more than anything else. Most financial companies don't have the casino-like trading operations that Lehman Brothers, Bear Stearns, Citigroup and others employed to bring down the economy.
Yet many people think of M&T and other non-Wall Street banks as being in the same category with Citi and Goldman Sachs.
"Forget M&T. I don't know of a more responsible, ethical industry than community banking," Wilmers told me. Yet the public doesn't share that view, he said: "I just saw a poll somewhere that showed that bankers are third to the bottom of the list, just ahead of politicians and crooks."
Here again he's amazed that the system continues to run more or less as before. Wall Street has "all the earmarks of a casino," he said, but it continues to enjoy protection from the Federal Deposit Insurance Corp., which is supposed to guarantee deposits, not trading profits.
Rather than reform Wall Street banks, he said in the speech, Dodd-Frank "has acquiesced in the perpetuation of their problematic business model and linked the fortune of traditional banks with their fate."
Wilmers is less specific on remedies than he is on diagnoses. He wouldn't break up the Wall Street banks, he said. Nor would he impose a financial transaction tax, as some have proposed. He would, however, "corral" the trading operations from bank deposits and give them higher capital requirements.
The credit-rating agencies badly need more competition, he said. Fannie and Freddie can't continue to be ignored. Eight hundred and fifty pages of legislation that adds to banking costs but doesn't solve the main problems, he seemed to be saying, may be worse than nothing at all.