An Easy Way to Learn More About Banking

Every year when Richard Davis was the chief executive officer of U.S. Bancorp, he would travel to see Warren Buffett in Omaha, Nebraska.

“The meetings were always on the same day and always lasted exactly an hour and 15 minutes,” Davis once told me. “That wasn’t the plan. It just happened that way.”

Even though the meetings went over an hour, however, there were never people in the waiting room annoyed that the conversation went long. The tranquility was refreshing to Davis, who was accustomed to days packed with back-to-back meetings.

Buffett guards his time. He spends 80 percent of his day reading and thinking, he has said.

A student at Columbia University once asked Buffett, the chairman and CEO of Berkshire Hathaway, how to become a great investor. “Read 500 pages like this every day,” Buffett said, holding up a stack of papers. “That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”

The same is true of banking, I believe.

But where should one start? What are the most important things to read if one wants to learn more about banking?

As someone who has been immersed in banking literature for nearly a decade, I recommend starting with the annual shareholder letters written by a trio of top-performing bankers.

The best known is Jamie Dimon’s annual letter written to the shareholders of JPMorgan Chase & Co.

“Jamie Dimon writes the best annual letter in corporate America,” Buffett said on CNBC in early 2012. “He thinks well. He writes extremely well. And he works a lot on the report—he’s told me that.”

In his letter this year, Dimon talks about JPMorgan’s banking philosophy. He talks about leadership. He talks about the things JPMorgan doesn’t worry about: “While we worry extensively about all of the risks we bear, we essentially do not worry about things like fluctuating markets and short-term economic reports. We simply manage through them.”

And Dimon comments extensively on an array of critical issues facing not just the banking industry, but the broader economy and society: “[I]t is clear that partisan politics is stopping collaborative policy from being implemented, particularly at the federal level. This is not some special economic malaise we are in. This is about our society. We are unwilling to compromise. We are unwilling or unable to create good policy based on deep analytics. And our government is unable to reorganize and keep pace in the new world.”

A second CEO who writes an especially insightful letter is William Demchak at Pittsburgh-based PNC Financial Services Group.

In his latest letter, Demchak delves into PNC’s retail growth strategy, outlining the bank’s expansion into new markets using a combination of physical locations, aggressive marketing and digital delivery channels.

Demchak also discusses the changes underway in banking: “It’s an amazing time in the industry—exciting, if you’ve been preparing for it, and probably terrifying if you haven’t. . . . [I]n some ways, it feels like we’re running through the woods with 5,400 other players and one big bear: retail customers and deposit consolidation. Some will be lost in the chaos; others will fall victim to bad decisions and the realization that they waited too long to start moving toward the future.”

Last but not least is the letter written by Rene Jones at M&T Bank Corp, a regional lender with $120 billion in assets based in Buffalo, New York. Of all the annual messages written by bank CEOs this year, Jones’ does the most to advance the industry’s narrative.

It’s crafted around two arguments, the first of which concerns the growing share of retail deposits held by the nation’s biggest banks. This trend isn’t simply a function of scale and technology, Jones argues. It’s also driven by demographic patterns.

“Historically, deposit growth itself is highly correlated to increased employment, income and population,” Jones writes. “The banks with the most scale have benefited from their outsized presence in the largest U.S. markets, which unlike past recoveries, have experienced a disproportionate share of the nation’s economic growth.”

Jones’ second argument concerns the need to refine the existing regulatory framework: “Regulation, like monetary policy, is a tool whose purpose is simultaneously to promote the economy while protecting those who operate within it. It is a difficult balance—especially so after significant events such as the financial crisis. The practice of implementing and adjusting regulation is both necessary and healthy, because its impacts are felt by communities large and small.”

Jones’ message will resonate with bankers, as M&T has long been an unofficial spokesman for the industry on regulatory matters, giving voice to their frustration with the sharp swing in the regulatory pendulum over the past decade.

In short, all these letters are worth the modest amount of time they take to read. They are three of the leading voices in banking today. There’s a reason someone like Warren Buffett reads what they write.