Jim Aramanda, TCH: Let’s start off on a lighter note. As you know, Alexander Hamilton, who founded The Bank of New York 233 years ago, has been getting a lot of exposure lately. It certainly is nice to see Hamilton receive the recognition he deserves, and I’ve noticed BNY Mellon has had some fun with Hamilton on social media. How does Hamilton’s legacy live on at BNY Mellon? As the institution’s CEO during “Hamilton-mania,” what does the attention Hamilton is receiving mean for the institution that he founded?
Gerald Hassell, BNY Mellon: Alexander Hamilton and his legacy, even before Hamilton: An American Musical, have lived on within our firm. We always go back to his visionary exploits – not only forming our company, but all the other great things he did as a Founding Father of our country.
Over the past several years, while we were preparing for the move of BNY Mellon’s corporate headquarters, we wanted to make sure that Hamilton’s legacy remained front and center. We had a museum in our old building; we wanted to make sure the artifacts and the heritage had a prominent place in our new headquarters. Then, lo and behold, the Hamilton play comes out and “Hamilton-mania,” as you call it, erupts. So it’s been fun reminding our staff all around the world of the visionary aspects of Hamilton and his legacy.
“The future leaders of companies like ours, if not most financial institutions, are going to come, if not directly out of technology, with heavy, heavy technology expertise.”
It’s also been gratifying to hear employees and their children learn more about Hamilton through the play and what an influential individual he was. We want to carry that legacy throughout our company and remind people that the heritage of The Bank of New York, now BNY Mellon, stems from someone who innovated throughout his career. We want to continue that legacy and that spirit of innovation for many years into the future.
Aramanda: I think it’s a fabulous history. As you know, The Clearing House has a pretty long history, too, at 164 years old, but it pales next to BNY Mellon’s.
Hassell: There’s no doubt that we have had many firsts, as I call them: We are the oldest U.S. bank still operating under the same charter; we are bank “one” at the Federal Reserve; ours was the first stock traded on the New York Stock Exchange; we made the first loan to the U.S. government, for which we still have warrant No. 1 in our Heritage Room; and the first Secretary of the Treasury in Hamilton himself. There’s a lot to be proud of.
Aramanda: We have a number of artifacts from the founding of The Clearing House back in 1853. One of them, which I look at every day when I come to our offices, is a plaque of the founding TCH banks. The first TCH member bank was The Bank of New York. Looking back through your career, you have spent your entire 44-plus year career at BNY Mellon, after starting out in The Bank of New York’s management training program at 21 years of age. Let’s start with some of the major trends you have witnessed during your career, including the tremendous growth in the industry through both consolidation and globalization. What stands out in your mind as you reflect on the growth of the industry in the past decades, both in scale and scope?
Hassell: Well, certainly in the first part of my career, the original Bank Holding Company Act that was enacted in the mid-to late ’50s was really taking hold. Banks back then, including ourselves, were acquiring small regional banks. The Bank of New York acquired banks in upstate New York, Long Island, and New Jersey. The banking industry has obviously gone through phases of consolidation and breakup, and the number of institutions that disappeared over a relatively short period of time has been quite remarkable.
The first phase of my career was watching The Bank of New York become a broader universal bank, as many other banks did at the time. I started out in our training program, which trained me as a credit analyst for corporate banking. But at the same time, the institution and virtually all institutions at the time were branching out, no pun intended, into retail banking, credit cards, mortgages, mortgage banking, and consumer finance. So that was the first major phase of modern banking that I witnessed during my career.
The second phase was watching The Bank of New York and other institutions go global, as banks looked to extend their reach once a certain critical size and mass had occurred in the U.S. In our case, we were following our clients as they moved outside the U.S. in terms of their activities and providing services and capabilities as they branched into new markets and new geographies. When I first joined our bank in 1973, we had one international branch in London. Today, we operate in 35 countries and 100 different markets. We have become a global financial institution.
“[Low interest rates have] slowed economic growth and development, rather than accelerating or protecting it, and it’s unhealthy for the economy. … I think it’s been harmful for the long term.”
The next phase was the repeal of the Glass-Steagall Act, which drove another round of bank consolidation and, in particular, banks moving into investment banking activities. This translated into our being able to do loan underwriting, bond underwriting, and syndication. At this point, banks truly became universal banks competing with the traditional investment banks. These are certainly the major phases I witnessed in the industry before other exogenous events, such as 9/11 and the financial crisis, came into play.
Aramanda: Also in terms of significant events that had a major effect on the country and where BNY was directly affected, maybe you could talk a little bit about 9/11. The Bank of New York was unfortunately at Ground Zero on 9/11. It’s hard to believe it was 16 years ago.
Hassell: Yes, 16 years. It is hard to believe. Like most financial institutions at the time, we were highly concentrated in terms of where our people were, where our data centers were, where our operations were. In our case, the bank was highly concentrated in lower Manhattan, right around the World Trade Center. Our headquarters were a couple of blocks south, and our main data center and our main operating center were two blocks north. We immediately declared a crisis for our main data center and operating center, and we had to evacuate the buildings. Fortunately, somebody made the call very early after the planes hit, so we were out of our building when the towers came down. When the towers came down, all of the windows in our Barclay Street building imploded from the compression.
There was the emotional toll, the physical toll, and the reconstruction toll. It was miraculous that we lost only three people, but we did lose three of our colleagues. We had to start rebuilding the company immediately in new locations while recovering from an incident that we never really planned for. And as you know, even then, we were a critical part of the infrastructure for how the financial markets operate.
Somebody was wise in shutting down the equity markets for a few days, but the fixed-income markets were never closed, and we were the biggest processor and clearing agent for fixed-income securities. We were out of our main data center and our main operating center. It was hugely impactful on our company, and we learned a lot of lessons. The spirit of the company and the people rose to an unbelievable level. We were able to achieve things one would have thought were impossible, and we accomplished them in a very short period of time. We were able to recover day by day, and get back to normal, but it was hugely impactful to the company.
Aramanda: What a testimony to your employees.
Hassell: Absolutely. The staff, all around the company, rose to the occasion in an unbelievable way.
Aramanda: That was clearly a major event, but we also had the stock market crash of ’87, and the financial crisis that we all just went through. So, could you comment on some of the changes that have occurred as a result of these other events, regulatory and otherwise?
Hassell: Well, maybe starting with 9/11, one of the big changes we all went through is dispersion of data centers, and making sure you have redundancy of telecommunication networks and capabilities, and recovery sites. A lot of thought went into how to make financial institutions more resilient and more recoverable. We now face the same sort of risks from a cybersecurity point of view. It’s a different kind of threat that we all have to engineer and plan for, and that’s another whole set of challenges.
Fortunately, in terms of the crash of ’87, our institution has always been extraordinarily well capitalized and liquid, and we don’t have a heavy reliance on equity trading, position taking, or market making. So, besides the huge loss of value of the equity in the stock market crash, as a company we got through that quite well, all things considered.
With the financial crisis, all market participants were deeply affected. Our big challenge at the time was how to support our largest clients going through enormous stress, loss of liquidity, and loss of confidence, and making sure that their problems didn’t become ours.
We had our own losses and our own exposures, but again our capital and liquidity were strong enough that I don’t think we were considered at risk, unless there was an absolute drop off the cliff, which would have brought all of us down. So, again, we learned enormous lessons about capital. You may think you have enough capital, and you may actually have enough capital, but if you don’t have enough liquidity, then you’re out of business.
Aramanda: Switching a little bit more to you at a personal level. You commented earlier that when you joined The Bank of New York, you trained to be a corporate lender. That, traditionally, was the path to the C-suite, although I think all that’s changed today. Maybe you can touch on some of your career highlights and how they prepared you to be CEO back in 2011.
Hassell: The reason why I stayed at BNY Mellon for my entire career was that I was given many opportunities to go down different paths within our company. The first part my career was in our banking area – lending money, providing capital, debt underwriting, and loan syndication to our corporate clients and building our capital markets business. I had a great time doing it.
A good portion of my career was spent working with cable, telecommunications, broadcasting media, cellular telephone, and emerging industries, and it was a lot of fun working with entrepreneurs who were building new industries that have become the mainstay of America today. Back then, banks were able to make those kinds of loans. In today’s regulatory environment, we’d be severely challenged to be able to make those same kinds of loans to emerging companies because they’d probably be considered too leveraged or too risky. Yet we were able to be a participant, if not a leader, in helping emerging industries develop and grow. So, that was a blast.
In the next phase of my career, I was asked to be in charge of strategic planning for the company, which sounds like a glamorous job. I was really a facilitator working for the CEO and the president at that time. I was working with the other business units to try to develop strategies and business plans for the future. It gave me an exposure to the entire company that as a relatively young person was an honor and a real career differentiator for me.
I think I was the ripe old age of 31 or 32. It gave me a window into all parts of our company, and that’s when I gained exposure to our securities servicing businesses, which were still emerging within our company. Banking was the dominant part of our business, but securities servicing was increasingly becoming important. Later in my career, I was asked to take on the securities servicing activities and businesses, which exposed me to technology and operations and how the markets and market infrastructure works. As they say, the rest is history. So, literally every part of the company at one time or another has reported to me.
Aramanda: I love that story. Just as an aside, I interviewed with Bank of New York back in the mid-’70s and I was in technology at the time. I was offered the job, but I didn’t take it. The interviewer had asked me what my goals and aspirations were. Like any 27-year-old, I said I want to be the CEO of the company. They laughed dismissively, telling me the pathway to CEO will never come through technology. Ultimately, I did not take the job, but that reaction stuck with me.
Hassell: I think the future leaders of companies like ours, if not most financial institutions, are going to come, if not directly out of technology, with heavy, heavy technology expertise.
Aramanda: Along those lines, let’s switch gears a little bit and talk about innovation. Everybody throws the term around and we know that it’s necessary for survival. There’s no way, for instance, that BNY Mellon is going to have another 233 years if you’re not going to be innovative and leverage newer technologies. Can you discuss some of the advances BNY Mellon has made with newer technologies? Also, how do you see the drive to digitization playing out for financial firms during the next few years?
Hassell: About 15 years ago, we reached an inflection point, sort of a crossroads in our company. This was under the leadership of Tom Renyi, our CEO. We had to either decide to become a big universal bank or go the specialty route. We were a universal bank of average size, and Tom had the vision, which I shared, to be deep in a certain number of businesses. We decided to become a specialty institution and focus our capital, energies, talent, and expertise on investment services and investment management.
We sold off and traded everything from credit cards to retail banking, mortgage banking, and all the things a universal bank has, and concentrated our energies on investment services and investment management. Doing this, by definition, made us focus on technology and operations as a driver for our future success. We have a deep history and appreciation for how and why technology can be used as a business driver and a facilitator and its importance for our clients. We’ve been heavy investors in technology infrastructure, networks, clearance and settlement engines, and processing capabilities. We try to use technology as the enabler to drive that business agenda for the benefit of our clients.
That said, we still have way too many functions that are manually driven within the company, or manually settled. We see the next wave of our future being the digitization of all of those activities, and utilizing blockchain distributed ledger technologies to make our systems and processes more standardized, reliable, and resilient. We are building applications and platforms that allow our clients to consume information and execute transactions through common portals. That technology is our future, and it will be a real differentiator for us.
“Marrying attributes of the new technologies with large-scale institutions is going to be the next challenge for all of us. The winners will be those who embrace it and can have the best of both worlds. Those who can’t, or won’t, will be left behind.”
We have a huge commitment to technology and digitizing the company. In the spirit of innovation, this ties back to Alexander Hamilton. We’ve developed “innovation centers” around the world as a means to have our business leaders collaborate with our technology leaders to develop better capabilities and new solutions for a new marketplace.
Aramanda: On a different front, interest rates have been at historically low levels since the financial crisis. This is only now starting to change. How have low rates affected the financial industry and BNY Mellon’s strategy?
Hassell: It’s another huge impact on the industry, broadly speaking. Low rates, zero rates, or in some cases negative rates in Europe for extended periods of time are unprecedented, unheard of, and difficult to plan around. Without interest rate spreads, banks can’t make money, and if they can’t make money, banks can’t reinvest for the future. Low rates have slowed economic growth and development, rather than accelerating or protecting it, and that’s unhealthy for the economy. An extremely low or zero interest-rate environment has brought the yield curve and risk spreads down with it. I think it’s been harmful for the long term.
Seeing interest rates come up a little bit, we’ve been able to get some yield back on our deposits. One of the consequences of low interest rates was that money market funds couldn’t invest in securities to get any kind of yield. If they can’t get a yield, then they can’t cover the expenses of administering those funds. If they can’t cover the expenses, then you are forced to ask everyone to waive expenses or to waive fees that you would normally charge as part of the investment process. The banks absorbed all of those costs for years. Banks are just now starting to recoup some of those costs.
In our case, we were probably proportionately more affected by low rates because we’re a deposit-driven organization, not an asset-driven organization. We invest our deposits in high-quality, highly liquid assets, and when there’s no yield on them we can’t make money. This hurt our earnings significantly and slowed down our ability to invest for the future.
Aramanda: One of the reasons why the Federal Reserve has kept interest rates low is to spur economic growth. What is your perspective on how low rates have affected the overall economy?
Hassell: I think it’s had a chilling effect. The first year or two probably made sense because there was so much uncertainty and you wanted to have sufficient liquidity in the marketplace. But after that, I think low rates have become an anchor to economic growth.
Aramanda: The banking industry has gone through the most sweeping set of changes to the regulatory architecture in history. Now that most of the regulatory change has been implemented, did the changes achieve their mission? If you could change or tweak several pieces of the post-crisis regulatory framework, what would they be?
Hassell: There’s no question we learned a lot through the financial crisis. Banks were too leveraged and too unwieldy and additional regulation and supervision was required. Specifically, additional regulation was needed to address capital levels, liquidity levels, and making sure institutions knew the stresses of their businesses and the stresses of their balance sheets. Actually, the stress tests that we’ve all been asked to do have been a great exercise. I know we have learned a lot through our own stress tests. In some cases, we use the findings as a basis for business decisions and for our budgeting and planning process.
So, there have been many good benefits that have come out of additional regulation and supervision. Like any regulation or supervision, however, the pendulum has probably swung too far and it’s gotten too prescriptive, too narrow-minded, and in some cases it has also become an inhibitor to growth and development. In the interest of being overly cautious, they probably dialed it down too much. We would like to see, and continue to advocate for, some moderation. We aren’t looking for wholesale changes but some moderation to what’s been put in place.
Aramanda: Last question: Looking forward, based on your experience, and if you had a crystal ball, what significant changes do you see in the industry over the next 10 years?
Hassell: I think the significant changes are going to be around technology and how technology is used and deployed, and how to use technology to serve all of our clients, be they institutional, individuals, or small businesses. Technology is changing all industries dramatically, and I think financial services are in that same camp.
Financial institutions, virtually all of us, are big, bureaucratic, highly regulated, highly process-oriented institutions. The new technologies are nimble, quick, easily digestible, and easily deployed. Marrying attributes of the new technologies with large-scale institutions is going to be the next challenge for all of us. The winners will be those who embrace it and can have the best of both worlds. Those who can’t, or won’t, will be left behind.
This is happening on a global basis. In some cases, the less-developed markets are leapfrogging us. They’re not burdened by old technologies, mainframes, and old processes. They can leap forward to something new and different and reach across geographies and boundaries in ways that were never thought of before. I’m actually very optimistic about our firm and the industry because I think we have the capacity to invest and adapt and innovate as we go.
Aramanda: What’s next for you after BNY Mellon?
Hassell: Well, that’s a great question, and I don’t have an answer yet. I’ve spent 44 years almost singularly focused on trying to help develop this company into a first-class global organization, and so I’ll think about it for a while and see where I can turn my energies. I’m on a couple of outside boards, which I’m sure I’ll spend some more time at, and then just think about life and figure it out.
Aramanda: Thanks very much, Gerald, and for all that you’ve done for the industry.