Roy Whitehead, Chairman, President, and CEO of Washington Federal Bank (WF), was the speaker at the most recent Albers Executive Speaker Series event on February 18th. WF is the largest bank headquartered in the state of Washington, with over $14 billion in assets, nearly 2000 employees, and well over 200 branches across eight western state. By not getting caught up with exotic and risky mortgage lending, WF was able to navigate through the Great Recession unscathed and in position to acquire other banks that were failing.
Whitehead wanted the audience to know that banking is an important sector in our economy and a noble profession. Its role in our economy is to provide for the efficient distribution of capital. WF sees itself as a steward of societal resources and acts accordingly. It also knows that it takes a healthy community to have a healthy bank, so it invests its time, talent, and resources back into the communities that it serves.
Whitehead noted how the environment for banking was getting more complicated. The Fed's aggressive moves with quantitative easing have held interest rates low and squeezed margins for banks and savers. While the low rate environment might benefit the stock market and help stabilize the housing market, it results in unintended consequences that are not good for the economy over the long run. This includes introducing a moral hazard that results in increased risk taking, an inflated bond market, and disguising the long run consequence of the large government deficit.
He noted that the economic recovery had been tepid, and his explanation was that businesses were being very cautious with their expansion plans. When faced with conditions not seen before (like now), they are going to be more conservative in how they operate their business.
A second complicating factor for the industry is the increase in rule making, often in an attempt to prevent the reoccurrence of the housing bubble that led to the Great Recession. Increased regulation is requiring more and more resources for regulatory compliance, diverting banks from more productive activities.
Despite these challenges, Whitehead said that the best leaders will look for the opportunities, and they are definitely present in the banking sector. One opportunity is the application of technology to banking services and the payments system. Much has occurred and there is more to come. A second area of opportunity is more sophisticated systems for risk analysis and management. And a final opportunity comes with the application of Big Data to marketing research on the needs of bank customers. Moreover, much of the banking work force is aging out, so there are many opportunities for growth for younger workers.
When asked how the organization chooses its leaders, he noted that aptitude and attitude are important, but the most important element is personal values that align with the company's values. He also noted that WF found that graduates of SU shared their values and for that reason they were anxious recruit SU students!
Whitehead explained that WF was able to weather the financial crisis because they manage the bank over a 3-5 year horizon, and avoid maximizing profits for the next quarter. They knew better than to get into the exotic mortgage products that were developing a decade ago. Holding mortgages on their books rather than selling into the secondary market forced them to keep their underwriting strong. Maintaining a strong capital base, high asset quality, and operating efficiency allowed them to sail through the crisis while others were collapsing. Acquisition opportunities resulted and allowed them to significantly expand their size and footprint. Getting through the Great Recession unscathed was the proudest accomplishment in his career, he said.
In response to a question about whether we overdid it with regulations in the aftermath of the Great Recession, Whitehead is certain we have and that the new regulations will not prevent the next crisis. He was highly critical of the size of some financial institutions, and said this had been facilitated by using FDIC insured deposits to fund risky activities. He favored a return to Glass-Steagall and the separation of commercial and investment banking.
When asked how he ended up in the banking industry, he said that when growing up, he wanted to be a shortstop for the Cincinnati Reds, but realized the odds were against him. Instead, he saw that there were many businesses and they all had a CEO, so aspiring to be a CEO seemed to offer better odds. In earning his business degree at the University of South Carolina, Dr. Oliver Wood became his mentor, and Wood pushed him to consider the banking industry. When he graduated, he started out working for the Federal Reserve on the regulatory side, but soon switched to the other side of the industry, and more than 35 years later has become one of the most respected leaders in the banking industry.
Roy Whitehead's visit to the speaker series was a great opportunity to learn from a widely admired business leader. With his integrity, commitment to the community, and focus on the fundamentals of his industry, he serves as a terrific role model for our students.