Tell me why: in Richard Davis's book, relevance is key to top performance at U.S. Bank. So is proper support

RMA Journal, The, Sept, 2004 by Beverly J. Foster

U.S. Bank has 2,315 branch banking offices in 24 states, more than 51,000 employees, and more than $190 billion in assets. In the "Who comes first--the customer, the employee, or the shareholder?" conflict, U.S. Bank seems pretty intent on its 11 million customers. That's a lot of people to keep happy within risk management parameters, and the bank's Five Star Service Guarantee (service delivery standards, convenience, quality products, employee empowerment, and execution) has a plethora of systems and programs in place to help. Richard K. Davis, U.S. Bancorp's vice chair, Commercial and Consumer Banking, doesn't mind when customers collect on that guarantee.

RMAJ: You delivered a keynote address in July at RMA's 2004 Retail Risk Management Conference. What is the most important point you felt you made?

RKD: Do you remember the TV program Bonanza? That show depicted a town that had a general store, a bank, a saloon, a jail, and not much else. On a handshake, a banker promised to keep a customer's extra money safe and asked if he could lend it temporarily to someone else. Bank holdups were fairly common, customers defaulted on loans then as they do today, and stagecoaches were waylaid.

So bankers started out as risk managers. The most important point I made at the conference was that, at the end of the day, it's no more complex now than it was in the mid-1800s or the days of Bonanza. Sure, risks are now recognized separately as credit, market, liquidity, legal, regulatory, and so forth. And advances over the decades have allowed risk managers to make more decisions today than we might have back in Bonanza days. Today's customer may not be as well known and may have a few credit flaws, but our tools can help us see past the flaws to determine whether we can expect to see the money paid back. But the bottom line is that managing risk well is nonnegotiable, and using risk to safe and profitable advantage has always been the goal. Effective risk management enables us to differentiate from competitors our superior ability to be a risk manager and trusted advisor.

RMAJ: The "unbanked"--people out there with no banking relationships--have become a focus of a growing number of institutions, which may offer a debit card or special checking account to draw against direct-deposit paychecks. How do the unbanked figure into U.S. Bank's risk/reward matrix?

RKD: Our "Checking That Pays" program, which rewards customers with cash back each time they use their debit card, is one of several programs we have to provide ways to encourage their faith in U.S. Bank and a good reason for them to take the time necessary to open and maintain an account.

Capital One may have the most sophisticated risk modeling technique of any card company, and I believe we have the same level of sophistication for our checking accounts. We're not looking for a profitable relationship based on pelting risky customers with fees; rather, we foresee a profitable relationship over the long term through a growing relationship. Before we had this capacity, we would have had to turn down a number of people who show the potential to be good, long-term customers.

But there's another side to your question. A year ago, as a board member of one of the banking associations, I had the opportunity to discuss issues of importance on Capitol Hill with other retail bank leaders and bank regulators. We reminded the regulators that we don't think there is any such thing as "unbanked" any more. That term used to mean people in America without access to a bank or those who did not know where to go for financial services. We've proven that, except in certain areas within big cities, there are very few people who cannot access bank services. There are check-cashing agencies located across from banks, and some people are choosing not to use a bank. We told the OCC that banks don't deserve to be portrayed as those responsible for the unbanked. However, we all need to find more ways--through CRA efforts and other means--to be even more accessible to those who want to bank. We simply need to work better with the government to create incentives for banks to do business in less attractive and riskier areas.

RMAJ: What do you think it takes to be a good retail risk manager today?

RKD: That's easy. To be successful, a good risk manager has to evaluate both the expense and revenue pictures. From one perspective, risk managers are perfect if they do nothing because then they take no risks. But to be successful, a risk manager needs to be able to prove that the benefits of a certain initiative are greater than the risks and say, "The situation may change, but let's try it, and I'll monitor things to ensure that we react quickly if that balance changes."

The best risk managers are people from the line side of the organization who move to the risk side and are helped by very bright data people to ascertain the risk/reward balance and change complex formulas into actionable steps. By coming from the line side, they know for whom they're managing the risk.