# O **NEWS RELEASE**

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| ## Comptroller of the Currency      | ##### NR 2000 - 46             |
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| Administrator of National Banks     |                                |
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FOR IMMEDIATE RELEASE Contact: Kevin Mukri

June 20, 2000 (202) 874-5770

Remarks by\
John D. Hawke, Jr.

Comptroller of the Currency

Before the

Stonier Graduate School of Banking

Washington, D.C.

June 19, 2000

It's a pleasure to welcome the first incoming class of the Stonier
Graduate School at its new home here at Georgetown. This is the third
campus to house Stonier since it was founded back in 1935 on the Rutgers
University campus, and I'm proud to say that the Office of the
Comptroller of the Currency was present at the creation \-- and ever
since. Over the years, dozens of our most able employees have come to
Stonier both as students and faculty, and they have invariably been
enriched by the experience. The OCC is committed to building on this
historic relationship and supporting the School's important work in the
years ahead.

As you probably know, the school is named after its founder, Dr. Harold
Stonier, perhaps the most distinguished educator of his day in the
fields of business and finance. It was Dr. Stonier who established the
business school at his alma mater, the University of Southern
California, during the 1920s. But the good doctor grew increasingly
weary of academe. No ivory tower intellectual, he believed that for
education to have real value, it had to be practical, and there was
apparently too much abstraction \-- and not enough application \-- for
Stonier's taste on the USC campus back in the twenties.

So he left to become education director of the American Institute of
Banking in 1927, and then, a decade later, executive director of the
American Bankers Association. That happy marriage lasted twenty years.
And perhaps the highlight of his tenure at ABA was the creation of the
graduate school of banking that today bears his name.

The school was founded on the proposition that if bankers were to enjoy
the same status as other professionals, they needed specialized formal
training. The goal was not only to deepen their mastery of banking
fundamentals, but also to encourage the exchange of ideas with other
practitioners on the pressing issues of the day \-- and not just the
purely vocational ones.

Creative thinking was in short supply in the banking business during the
1930s. Demoralized by the Great Depression and extensive new regulatory
restrictions, many bankers had a hard time rousing themselves to come to
work each day \-- and an even harder time believing in themselves and in
the importance of what they were doing for a living. It might have been
the least opportune moment to launch a graduate school of banking. But
never was one more needed to promote the intellectual stimulation and
fraternal pride then so sorely missing from most bankers' lives.

So Stonier forged ahead, and the ABA, with its long record of support
for professional education, backed him all the way. He saw the graduate
school as an agent of change that would eventually lead to better days.
And he was right. In the classroom and in after-hours skull sessions,
plans began to take shape to revive the industry, nurture its creative
spirit, and free it from excessive dependence on government. Many of the
leaders who were responsible for restoring the industry to its position
of influence and prestige in subsequent decades drew ideas and
inspiration from their experiences as Stonier students.

The school's general goals today are much the same as they were during
those early crisis years. The current curriculum reflects the same
strong emphasis on sound basic banking practice that was there at its
inception. Courses in credit risk management, asset/liability
management, and regulatory compliance were essential parts of the core
curriculum half a century ago, as they are today. But, faithful to Dr.
Stonier's passion for perspective and innovation and for pushing the
boundaries, the curriculum has not only kept up with the rapid changes
that have occurred in financial practice in recent years, but has moved
to the cutting edge of new financial products and services, new customer
demands, and new technologies. Among the courses from which you'll
choose are offerings in derivatives, international trade finance, and
retail delivery of insurance services. It should be next to impossible
to walk out the door with a Stonier diploma and not have an advanced
understanding of the challenges and opportunities that await the banking
industry as it moves into the 21^st^ century.

But I believe that the underlying philosophy of the Stonier curriculum
\-- this balanced blending of old and new, of vision and verity \-- is
every bit as important as any specific element of it to the future of
this industry. And that's what I'd like to discuss with you this
evening.

The recent history of the banking business can be seen as an ongoing
search for balance and stability. I'm not referring to the rigid,
low-growth, cartel-like stability of a generation ago. Those days are
gone \-- and not lamented. Rather, I'm speaking here about the
industry's quest for a middle ground between boom and bust \-- for a way
of avoiding alternating and often disastrous excesses of caution and
risk. It hasn't been easy, partly because bankers today probably have
less control over the larger economic forces that affect them than at
any time in the past. It used to be that commercial bankers served as
prudential counterweight, responsible for increasing credit during slack
times and putting on the brakes when the economy threatens to overheat.
As you know, central bankers and governments now perform that critical
function.

It was not that long ago when bankers were responsible for setting
standards and writing many of the rules that the rest of the business
community lived by. They don't do much of that anymore. Competition and
the diffusion of financial power have eroded the industry's dominance
\-- and its moral authority. But bankers still play a critical role in
the economy, and they still have compelling responsibilities to their
customers and shareholders. Bankers may not be as free as they once were
to impose their standards on others, but they cannot afford to stop
applying those standards to themselves \-- even if that involves walking
away from dubious deals, or steering clear of activities that may pose
undue reputation risk, or entering new fields without first acquiring
the necessary managerial expertise.

Self-denial takes discipline, and discipline takes reinforcement. It
requires concerted effort \-- by attitude-shapers in the financial
media, by those who provide professional education, and by senior
management \-- to ensure that the industry keeps a close watch on the
fundamentals of safe and sound banking while it is also looking \--and
thinking \-- ahead.

We regulators have an important role to play in this effort. I would be
less than honest if I didn't acknowledge that at times in the past we
have been have been part of the problem. We, too, have occasionally been
guilty of the sin of inconstancy \-- of blinking at unpleasant facts, of
allowing problems to linger a bit too long, and then, necessarily, of
acting abruptly against troubled institutions.

We would like to think that those days are behind us \-- that we have
learned from our mistakes and have taken the steps required to correct
them. We have resolved to bite the bullet when necessary \-- and to
compel banks to do likewise \-- in addressing issues that we believe
threaten the safety and soundness of individual institutions and the
banking system as a whole. When we spot weaknesses in credit
underwriting, internal controls, compliance management, or any other
critical phase of a bank's operations, we are demanding prompt remedial
action. We are drilling into bank portfolios and downgrading assets
where appropriate. But we are also working with banks to achieve
positive outcomes.

We're strengthening our early warning systems, coupling the power of
modern technology with the formidable expertise of our staff. We're
making use of the stature of the Comptroller's office to remind bankers,
publicly and behind the scenes, not to allow enthusiasm and short term
considerations to override sound banking fundamentals and good common
sense. And we're carefully monitoring industry trends \-- again, drawing
on sophisticated computer models and other technological innovations \--
so that we can spot negative developments as well as provide positive
reinforcement when the industry takes constructive steps to correct
present or potential shortcomings.

In other words, we are determined to respond to problems in graduated,
timely, and tempered ways, so that we can avoid the need for more
drastic action later on.

We are encouraged to see the industry's leaders proceeding down a
parallel track. Many bankers are harnessing innovation, especially in
technology, to the fundamentals of safe, sound, and balanced banking.

Tremendous breakthroughs have been achieved in the area of risk
identification and management. Bankers no longer have to rely on
instinct and guesswork to figure out the nature and extent of the risk
they confront. Risk management has evolved into a specialized science,
with tools and terminology all its own. Computer models can detect small
changes in customers' risk profiles, collateral values, asset-liability
matches, portfolio shifts, and lots more. With this information, bankers
are able to make incremental operational adjustments to meet corporate
goals for risk tolerance in pricing, credit availability, portfolio
allocation, and so forth. Indeed, in recent months the industry has
demonstrated an impressive dexterity in adjusting loan underwriting
standards to reflect changes in the economic environment and their
customers' prospects. By tightening the strings ever so slightly today,
bankers are ensuring that the pain of massive credit curtailment can be
avoided in the future.

The new risk management tools represent an important contribution to a
safe and sound banking system. But they are no panacea. Such advanced
tools and techniques are a complement to \-- and must never become a
substitute for \-- a risk management program solidly grounded in an
understanding of the nature of risk, the forms its takes, and how to
control it. That's what I mean by a balanced blend of vision and verity.

Let me put it another way, in another context. Because banking is such
an information-intensive business, bankers \-- contrary to their
reputation for conservatism and aversion to change \-- have always been
among the earliest adopters of information technology. It's not
surprising that the first industry to extensively embrace computers,
back in the 1950s, should also be a pioneer in the delivery of its
products and services over ATMs, telephone lines, and the Internet.

But especially in dealing with technology, it's crucial not to lose
sight of the distinction between means and ends. Banking is a service
business. And innovation, no matter how original, adds value to a
financial institution only to the extent that it aids in the effort to
provide excellent service. No matter what niche in the marketplace a
bank seeks to fill, customer service has to come first. Everything else
ranks a distant second.

Last year's controversy over proposed federal anti-money laundering
regulations had at least one unfortunate side effect: it turned an
imperative into an epithet. In fact, it's every banker's responsibility
\-- perhaps their foremost responsibility \-- to get to know their
customers[:]{.underline} their strengths and limitations, their goals
and aspirations. That understanding is the foundation of outstanding
service and lifelong customer relationships. Good bankers know what
kinds of products and services to offer customers \-- and, sometimes
just as important, what not to offer them. No one benefits in the long
run from a loan that can't be repaid or an investment that doesn't meet
the customer's needs.

Determining just what those needs are is a job that can best be
accomplished, again, by drawing upon both traditional and modern
techniques. Certainly there is no substitute for the kind of
person-to-person interaction that defined banking relationships in the
old days. Personal service is what many customers are looking for in a
bank, and they'll go \-- and stay \-- where they get it. Most customers
appreciate being known by their first names and having a single point of
contact to which they can turn to get answers to their questions or to
resolve a problem.

But modern information systems also give bankers unprecedented power to
collect, sort, analyze, and apply data about existing \-- and potential
\-- customers. Used properly, this information can be a boon to banks
and consumers alike. It gives bankers insight into the characteristics
of their customers, information that enables bankers to customize their
service offerings to each customer's individual needs. These days, it's
almost impossible to be a good financial services provider without
continuing to invest in technology and up-to-date automated systems,
because that's what today's customers have come to expect: easy access
to their funds and to account information, a wide variety of financial
options, and enough information to make rational choices from among
them.

But if personal financial information is misused or abused \-- and it's
eminently susceptible to both \-- it can be profoundly disruptive to
customer relationships and a bank's reputation.

The Know Your Customer controversy and the ongoing debate over the
privacy provisions of the Gramm-Leach-Bliley Act showed how strong
public sensitivities are on this subject. Clearly, consumers expect
their personal information to be handled in a way that does not
compromise its confidentiality. They do want to determine for themselves
whether information about them is to be shared with affiliates of the
bank or outside firms. They expect transactions to be processed
neutrally and nonjudgmentally by their banks. They do not expect their
banks to serve as agents of government surveillance. And they have
expressed these feelings in unambiguous terms to lawmakers and
regulators all across the country.

But we have to be careful not to draw the wrong conclusions from the
privacy controversy. I do not believe that customers are registering any
general opposition to the electronic delivery of financial services.
They expect effective safeguards against the misuse of personal
information, but they don't expect bankers to return to the stubby
pencil days. To the contrary, as I've already suggested, banking
technology has been embraced by the general public with considerable
enthusiasm. Internet banking has been somewhat slower to get off the
ground, but I detect little resistance to the idea per se. Most people
seem to have an open mind about on-line banking, but regard it as a work
in progress, with a number of practical issues that remain to be ironed
out. Once these problems are resolved, I believe the future of limited
Internet banking is bright \-- although it will never entirely supplant
person-to-person, brick-and-mortar banking. Here, too, a balanced
approach to the delivery of financial services, combining traditional
and novel approaches, will almost certainly prevail. A high level of
customer service requires an advanced technological base. But it also
requires the personal touch. That's true today, and I believe it will be
just as true in the future.

What consumers are demanding in regard to privacy, instead, is simply
that bankers continue to live by what has long been a fundamental tenet
of their business: that the information that consumers entrust to
bankers will be held in confidence. This expectation is a foundation
stone of the banking business, and no one has a stronger interest than
bankers themselves to assure that customers' expectations of
confidentiality are realized.

Although the differences between banking and other forms of economic
enterprises have narrowed, banking still retains unique characteristics
of a public trust. Balancing public and private responsibilities has
always been this industry's special charge. It still is today.

The program you're about to begin offers the tools you need to meet
those responsibilities. As I said at the outset, Dr. Stonier's whole
career as an educator and industry leader was built around the idea that
it was what one did with one's learning that counted. If you embrace the
spirit as well as the substance of what the program offers and apply
what you've learned to the critical decisions that you \-- and the
industry \-- face, then I'm confident that Stonier's legacy \-- and the
future of this profession \-- are secure

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  The OCC charters, regulates and examines approximately 2,400 national
  banks and 58 federal branches of foreign banks in the U.S., accounting
  for more than 57 percent of the nation's banking assets. Its mission is
  to ensure a safe and sound and competitive national banking system that
  supports the citizens, communities and economy of the United States.
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