June 12, 2020

Crisis-Induced Growth

“The most important ideas are those that apply to multiple fields,” Morgan Housel wrote earlier this year.

“A discovery from one field that’s useful to another field likely uncovers a truth about how people think and behave,” he continued. “And figuring out how people think and behave is the most important part of most fields.”

Take the calamity theory of growth, from psychology.

“Very often it is the crisis situation … that actually improves us as human beings,” Dr. Edith Eger wrote in The Choice: Embrace the Possible.

“Paradoxically, while these incidents can sometimes ruin people, they are usually growth experiences,” Eger continued. “As a result of such calamities the person often makes a major reassessment of his life situation and changes it in ways that reflect a deeper understanding of his own capabilities, values and goals.”

This theory applies with similar force in banking, where top institutions tend to catalyze growth in crises.

The deposit market share in the state of Washington offers a case in point.

Bank of America Corp. ranks first due to its 1983 acquisition of Seafirst Corp., the biggest bank based in the state at the time, which stumbled after dramatic swings in energy prices disrupted credit markets. And JPMorgan Chase & Co. ranks third following its acquisition of Washington Mutual in the financial crisis of 2008-09.

On a smaller scale, it was in the last crisis that Springfield, Missouri-based Great Southern Bancorp transformed through a series of FDIC-assisted acquisitions from a community bank concentrated in southwestern Missouri into a multistate regional bank with $5 billion in assets.

Yet, the poster child of crisis-catalyzed growth is Buffalo, New York-based M&T Bank Corp., which has completed major acquisitions in every crisis to strike the industry since its current leadership lineage gained control in 1983.

“You have to be careful not to be too ambitious,” M&T Chairman and CEO Rene Jones once told me. “Recognizing and embracing that as a fact tends to actually turn out to be a growth strategy because we know in the banking industry … typically there's somebody around who's going to have a significant misstep.”

These institutions aren’t fragile; they’re antifragile. They emerge from crises stronger, not weaker.

The key to antifragility is to institutionalize the lessons from history.

"Unburdened with the experience of the past, each generation of bankers believes it knows best,” wrote former Federal Deposit Insurance Corp. Chairman Irvine Sprague in Bailout: An Insider’s Account of Bank Failures and Rescues, “and each new generation produces some who have to learn the hard way."

• John J. Maxfield / executive editor of Bank Director