Just Economy Conference – May 4, 2021
Fireside Chat
William Demchak, CEO of PNC Bank and John Taylor, NCRC Founder & President
Transcript
NCRC video transcripts are produced by a third-party transcription service and may contain errors. They are lightly edited for style and clarity.
Taylor
All righty, welcome, everybody to the fireside chat with Bill Demchak, who is the CEO of PNC Bank, which just acquired, is about to require, with regulatory approval BBVA and become, Bill, is that the sixth largest bank in the United States?
Demchak
I think actually the fifth, but I guess it depends what you measure by, okay.
Taylor
Either way, it’s a giant bank, and it’s going to be very significant to communities throughout the United States and and in their assessment areas, particularly to low and moderate income people and NCRC. And as members of MIT working with Bill for some time to get the bank and to consider going forward, what does that mean for particularly traditionally underserved people in underserved neighborhoods?
Bill who grew up in Pittsburgh and is still in Pittsburgh, although he’s, he’s been to so many places in the world, you would think one of his Jobs was flight attendant, but he is…
Demchak
How do you know it wasn’t, John?
Taylor
I don’t actually. But, what I found is, you know, this is a guy I’ve met, and I’ve met with many CEOs over the last 30 years at different banks, everybody from Jamie Diamond to Brian Moynihan to so many different people. And you know that you have a lot of different experiences. And with Bill, I have to say, I was very skeptical at the beginning, I didn’t know what to expect. And then Jesse and I went through a series of community meetings with him and conversations on top of those meetings, and I have to say it was very refreshing and very encouraging to find somebody at the highest level at the bank, who could talk about many of the issues that mean a lot to NCRC and our members. That he was versed in it, he wasn’t constantly like some turning to this expert or that expert, but he was able to express what he wanted to do and who we wanted to help and why he wanted to do it. And I just got terribly impressed with with his work. But you know, Jesse set us up with his his last question of Senator Brown. And I’d like to go to that bill, if it’s alright, I was actually going to ask that at the end. But, you know, you have created this, what you call a low cash mode way of helping people as it relates to overdraft fees. And I’m wondering whether, you know, one of the comments that the senator made was to help people to get into the banking system. And I’m wondering a) how that low cash mode is going to work? And b) is this something that’s going to help traditionally underserved people who are currently not part of the banking system, or even if they are, to stay in the banking system, or to get into the banking system?
Demchak
You know, we’re actually doing three somewhat related things at the same time, low cash mode is kind of the coolest, I hate to use that word. But yeah, we’re doing some other things. One is the bank on products, you’re probably familiar with banks are offering checking accounts, they grade them, but basically very low or no fees. simplicity, no overdraft at the start, but an easy product for somebody to get into the banking system. The other thing we’re doing is an institution is to the extent somebody got in trouble with a bank account would otherwise have been charged off in history, which Yeah, you get charged off, it’s tough to get back in, we’re actually talking to that client and say, listen, the county makes us charge you off. But we want to keep you here, we’re gonna put you into one of these bank on products, so you’re still in the system. And then finally, what low cash mode does is puts, you know, everybody in control of their own payments, so that they actually don’t have an overdraft situation that would cause them to get in a bad place anyway. So I think three related things that are fantastic, in terms of getting people into the banking system, but keeping them there in a way that’s financially sound for them.
Taylor
So, obviously, overdraft fees have been incredibly profitable segment for the banking industry. And it’s also been one of the things that for community leaders who care about income inequality and so on, one of those issues that gets stuck in our craw, of the amount of money that’s being made and who it’s being made on.
So there’s been a lot of talk of different institutions who are now taking a look at the overdraft fees. You hear that the Senate and others have been talking about this. And I think they’re reading the writing on the wall in understanding that something needs to change.
Let me ask you a question that would tell me a lot, depending on your answer. How popular does this low cash mode make you with the rest of the banking industry?
Demchak
Oh, they’re furious.
Taylor
There we go. That’s the answer I was looking for. Because if you didn’t say that, I’d wonder whether it was really as good as what I know.
Demchak
They’re furious. And they and they can’t even if they wanted to do it, they can’t figure out how to do it with the technology. Yeah, I know, John, overdraft actually has some purpose, right. There’s that instance, where you would rather overdraw than miss your mortgage payment? Correct. You know, knock on your credit score and all this other stuff. But it ought to be right in your control, you ought to say that’s my best choice. So yes, I’m going to do that. And that’s what we’ve created. So it’s, they’re, they’re furious that the fees go away. And then they’re furious that they can’t actually create the product. Which, of course, I like.
Taylor
Well, hopefully, most of the industry will take what you’ve done as a lead and not as a negative thing. So congratulations on that. But there’s another little thing you did recently, that’s made the news. And it has to do with the $88 billion community benefits plan that, you, the bank committed to NCRC and its members, and more importantly, to low and moderate income communities across your assessment area.
Why, why now? What other than we asked you? I mean, which, which doesn’t mean you can you have to do it, because we asked, but what is it that motivating you to do this?
Demchak
You know, it’s a confluence of events. And by the way, I am remiss in not thanking yourself and Jesse just helping us through the process, we learned, I learned so much through all those meetings. But you know, we always talk and it’s not just words, we do it where we’re Mainstreet bank, we’re involved in the communities, you know, where we, where we live in work. And I think you’ve probably heard it when we did the group sessions, with organizations that were within our existing footprint. I mean, a lot of those people know us and knew what we stood for. We’re obviously entering a whole bunch of new markets that we don’t know. And communities have, in some ways, similar problems, but at the same time might have unique solutions and needs. And, and you know, what our tour did what you helped us accomplish was basically bring our company to life, or a plan to bring our company to life and all these new communities where we’re going to be working, when they thrive, we thrive. Yeah. And I can’t imagine how difficult the process would be because we would have gotten there on our own. That’s what we do anyway.
But, you know, to have a plan to be able to listen all these people at the same time and figure out key things and important voices and communities and how you react to that, was great.
Taylor
So for the viewers that the tour that Bill is referencing, is what happens is NCRC reaches out to its members and and others and sets up meetings in various assessment areas, not all the credit needs of one assessment area is the same as credit needs, and others maybe affordable housing is is more of a need in this neighborhood and our community and small business lending in another and and yet another both of those. So, you know, we set up those meetings and we try to do it in a way that Bill and his executives are getting an authentic, experienced understanding of what the Community Credit needs are. And that’s what he’s referencing, and those meetings were just phenomenal. Bill, let me ask you this. What is it what what parts of this $88 billion plan excite you the most so what is it that jumps out at you as where your own optimism, you know, that’s the run away with you.
Demchak
Housing.
Taylor
Yes. You want to speak on that a little.
Unknown Speaker 9:54
Yeah, it was a common theme through every market, different solutions. Perhaps, you know, the border communities seem to have their own challenges, you know, through unscrupulous practices of non banks. But when I look at the wealth gap that exists in our nation, it’s undeniable. I look at who we are, as an organization. We do money, we’re a bank, right, we can affect that. I see the problem, we have an opportunity to change it, put a plan together, do it. So when I think about what we can do in housing, and John, it’s so many little things, right. It’s our mortgage originators being paid salary not commissioned, so they spend the time in the communities. Yeah, it’s all the, you know, the power of the finance organizations in the communities who, you know, the word that was used over and over again, was patient capital. It’s the land, but it’s the advocacy, we can use our voice, you know, with politicians, and I know you have the head of the FAA channel, they’ve been on on or not, you know, it’s up to me, I get, you know, for all the money that government’s putting out in the economy, right. Now, they have to send a handful of billions every year to the FHA and let them because they’re the experts figure out how to help distribute it. But I think we can have a massive impact housing.
Taylor
I think you’re under something because there was a time when the federal government actually played a much greater role in the production of affordable housing.
Demchak
Yeah.
Taylor
A lot of that has been delegated out of the federal government and into the hands of private developers using tax benefits and other things, capital gains, reductions and things that stimulate investment in housing. And that certainly had an impact. But the question is, when you look at not just the homeless problem, but really the under housed, and dire needs for affordable housing with low and moderate income people, working class people as well, you know, it’s rather remarkable just how massive that is and how massive The problem is. And I, I agree with you, I just don’t see how, we obviously need the banks, as Willie Horton would say, that’s where the money is. That’s why you go there. But it’s, it’s got to be this combination of the federal government coming back in and understanding the role it needs to play in injecting funds to help the development and creation of affordable housing. I think that have the National Association of Realtors, home builders, in every bank very much lining up with them.
Demchak
But John, yeah, I don’t disagree with that. But of course, to do that, you need local government to allow the permitting, you know, for housing density to solve problems.
Taylor
Yes, that’s a very good point.
Demchak
Yeah. Where I see massive opportunity without a huge amount of changes.
Just the process of getting a mortgage, where appraisals are impacted by good old neighborhood, and you then need a second loan to do a rehab of the building. You know, for a little bit of money, a little bit of change in the way you do loan to Valley value for Ginnie Mae loan, I think we can change cities around the country. I don’t think it’s a lot of money. And I think banks could do it. And I think the housing organizations in those communities would know exactly where to do it today.
Taylor
I do think you are hitting the nail on the head when you talk about local permitting and, and institutions like appraisals, as well as title companies and so on. They all play a role. And I think, in addition to the government, sort of sidestepping their role, historically, when they used to be the entity that made sure that affordable housing was created, they’ve also kind of stepped away from any type of engagement on the local permitting and some of these other sundry companies that are necessary to get a mortgage. But I’m encouraged to hear that there’s a lot of conversation about that. And I’m very encouraged to hear a financial institution, a leader like yourself talking about the need for that.
Let me move on. I mean, just a little bit more about these listening sessions. I might have left that question too quickly as I thought about it. But, you know, one of the things that impressed me about you, Bill, is we have done a number of these community benefits plans, and in the past, we call them CRA agreements. And I’ve had the chance to meet, you know, some rather heavy CEOs and so on. But what what we got used to in recent history is we get a CEO to participate in these listening sessions. Maybe once, maybe twice, I would have to say Steve Steinhauer from Huntington bank did what you did, you came to these and and you came to almost all of them and your presence was saying to each and every community that you went to, with our NCRC members talking to you is that this is so important. Whatever else is going on in my life as the CEO of what is going to be the fifth largest bank in America, this is the most important thing, what do you say? What are you saying is going on? I need to learn from you, hear from you. Don’t let me put words in your mouth. But why did you feel it was important to engage? And what did you hear and learn that that made it worthwhile for you?
Demchak
Well, I can’t imagine why somebody wouldn’t. So to start with a negative comment, but I mean, we’re gonna spend or invest at a billion dollars, I damn well, better be there. And in order to have the biggest impact of it, and, and I’m a detail person to understand what we’re doing, why we’re doing, how it’s gonna work, who is going to impact and we needed to learn that these communities are different. I was. I mean, you know, you were at all the meetings, there were a couple of those meetings where I was literally speechless about, you know, some of the problems they faced in the behavior of the different financial actors in markets.
The challenges, they’ll get, you know, the imposed on communities by local government.
I mean, I, you know, after one I was hooked, but it was part of the job description anyway. We can actually, we can make a difference here, John.
Taylor
Absolutely. And, you know, I’ve had a saying for many years, that, and you’ve heard this Bill in several of the meetings, ‘banks are our neighborhoods, best hope, or they can be your worst nightmare.’ I really believe that, you know, in a system like ours, which is a capitalist system, a democracy, if, if we don’t have a system of democratic capitalism, where if you’re willing to work hard and play by the rules, that system works for you as well, that seems not to have been working for a lot of people and and for centuries, you know, for some that just that discrimination, the racial disparate treatment, the inequities that have created a long lifeline of people who simply never had the same opportunities that many of us take advantage of. And so I’m wondering, this is a tough question, because nobody has an easy answer to this, but just from a CEO of a big banks perspective, what do you think we need to do more of to address the racial inequity?
How do we make progress in this area? From your perspective, Bill?
Demchak
Yeah. Well, I’ll give you an answer in a second. You know, if I was dictator for a day,
you know, poor analogy, but I was in charge for a day….
Taylor
Well, being the fifth largest bank puts you close to that.
Demchak
You know, John, we all can do something. I’m in a position to do more than most, I always look at problems and say, alright, you know, what can I do? Quit talking about it and do something. And I say, I think you’ll see that come to life through our agreement, our behaviors, what we’re doing internally for our employees, our public advocacy, I think, you know, on a national basis, we have some structural, bad policies.
You know, I look, I look in and I’ll pick on Pittsburgh, my hometown, our city, public schools are funded only through tax assessments, they fund the school but tax assessments are down the neighborhood’s go down, the schools get worse? Why would you set up a system that does that every school, every kid ought to be funded the same way, independent of whether you’re in a rich neighborhood are not, that’s an idiot, simple, obvious solution that somebody ought to just do. Right? We ought to, you know, I think about, you know, the amount of money we’ll spend in waste, sometimes trying to go at housing problems. We don’t put it in the hands of the experts who know how to do it at the FHA, or in the community groups. I look at the city of eyes We met through your tour. You’ll give me on a rant here. Give those guys some capital, they change it.
Anyway, each of us needs to do the things that are within our power as individuals and I happen to sit in a privileged seat that perhaps can cause more to get done than most.
Taylor
Well, the other seat you sit in is the Banking Policy Institute, which is basically all the major banks, hundreds of them going, probably representing nearly 80% of the assets in the banking industry. And you’re now chair of that just became chair after Brian Monahan from Bank of America, which, you know, gives me a little hope, a lot more hope that this kind of conversation as much as they may dislike you at the beginning, which is what we talked about earlier, how banks are going to be feeling about your low cash mode and perhaps other things that you’re doing. How do we support you and your efforts to help that wokeness you know, spread throughout the banking community and getting more institutions to realize the need to fix the system so that funds are, in fact, tax dollars are going towards what is really needed. And I couldn’t agree with you more education. And you know, PNC has done a lot in early childhood stuff. That’s for anybody in your assessment areas, they know that well. But what is it that we can do to to create? And I don’t think you’re alone, I think, there are some folks who are not going to be happy with some of the things you’re doing. I think there are a lot who are going to emulate that.
Demchak 21:26
Everyone is going in on this. I will tell you, John, that the conversations we have
on the BPI board around this topic, and we hit it a lot, talk exactly to these issues. Everybody, you know, every bank is doing something a little bit different, but all trying to impact it. You know, naturally there’s some that are much more engaged than others.
But I do think, you know, the biggest thing that you guys can do with us, and I think that you know, I’m gonna get maybe Jesse now, or maybe both of you, given your retirement, but I want to get to here in a second.
But we’re going to get you guys in front of BPI.
Taylor
Oh, most people don’t know that. By the way.
Demchak
What’s that?
Taylor
I said most people don’t know that.
Demchak
I saw somebody sent me a memo.
Taylor
Yeah, we’re giving you a heads up.
Demchak
Oh, oh, I’m sorry.
Taylor
But now you’ve given others the heads up. That’s okay. That’s okay. I’m gonna talk about that later this afternoon.
Demchak
Well, we’re gonna have you in front of BPI.
Taylor
Great, great. And I look forward to that.
Demchak
And I think if we could get an organized voice on what to ask for, right, and we say, look, this is obvious good policy for our country.
And the problem is, you know, today there’s 1000s of ideas, any one of which is probably a good idea. But but they’re not critical mass, and they’re not coming with one voice. And so nothing gets done.
Well, you guys can help the most.
Taylor
We so look forward to that. And maybe what we could do is, obviously, before we go to the Bank Policy Institute, we spent some time discussing just that. What are the infrastructure kinds of solutions that we could offer that would have impact across the board? That everybody could understand why and get on board? So we’ll talk about that.
I do want to change the subject just a bit, because I know that we have a limited amount of time. But I wanted to ask you a question about the PPP process. You know, that further confirm that many of the small businesses particularly small business owners of color, are very skeptical about large banks. And it’s not that we’re given a blanket, endorsement, love fest to PNC or any bank. But when things occur like this, and $88 billion commitment to LMS, communities a, a locash mode that’s going to address the overdraft fees and perhaps set the direction for the industry. You want to recognize when good things happen. And that’s that, I think, just part of the good things that are now happening, and will be happening at PNC. But most small business owners and we’ve even heard this at this conference bill are very skeptical. What do you think the banking industry needs to do and understand in order to change that skepticism?
What what would be the best strategies for business lending to reverse decades even centuries of lending discrimination that would give people the idea that the bank is, if you don’t mind me stealing Wells’s slogan, that the bank is open for business? You know, it’s good because I, you know, I remember seeing a line coming out of a check cashing place and Harvard did a study they would ask people in that line, why don’t you go into the bank and you can see the branch down the street. And, you know, the basic thing was there wasn’t a belief that the bank wanted the business that they would do business with them. So there’s a mindset and experience that has to change if we are to reach folks and get them down this day and know. where we’re looking to make safe and sound loans to everybody and anybody who walks into a bank, how do we, what’s the best strategy on addressing thing?
Demchak
I mean, ultimately, it’s actions. words don’t matter. What one of the things that became very clear to us during PPP, was that we weren’t prepared for clients who weren’t prepared.
And we learned quickly to rely on various community organizations, to help clients with applications, in some cases to provide capital to, to, you know, other entities who could then do loans because they have the trust. So John, that whole, how do we get embedded locally in a community?
And have those conversations and know somebody before there’s a crisis? I don’t know the answer to that. That’s what we have to work out. And that’s part of what our agreements about, that’s part of why, you know, we’re gonna step up our community banking team and work with some of these local organizations. I mean, you remember the tour, every single group we had had CDFIs, and they also had financial literacy providers, advisors. community, I am doing a disservice to the some of the border towns who have the wise person that everybody trusts.
Put you on the spot, what’s that word?
Taylor
colonias?
I know, I know exactly what you’re talking about. I do.
Demchak
I’ll never forget that. So for us to be successful, you know, we have to be in that conversation long before there’s a crisis. You know, yeah. It’s just part of the ordinary business.
Taylor 27:29
So I think, Bill, and you know, this, but it’s important to be said that, as you do reach out to these communities and begin to reach deeper, particularly into communities of color, having personnel that reflect who you’re talking to is incredibly important. I know, you know that you’ve talked about it. I think the other thing though, and I’m not sure we talked about this, but advertising it on black and brown owned newspapers, radio stations, you know, where your names that’s the pop up within the circles and communities of information that traditionally underserved people are able to access or do access on a regular basis, that might also be helpful. Look, I did want to think I’m running out of time, I’m not sure but I wanted to first also say how delighted we are that you…. What’s that?
Demchak
The term Pramod Taurus? Yeah, probably pronouncing it wrong, but perama Taurus.
Taylor 28:33
Okay, so I’d like it when someone like yourself knows more about this than I do. But just How delightful we are that delighted we are that you supported section 1071 of Dodd Frank, which expanded the collection of data for small business lending. You know, it’s it, this is an argument we used to have, I used to have in particular with Alan Greenspan because he would say the equal credit Opportunity Act prohibited us from collecting that data on small business lending. And we would point out that you know, very few lenders would have a hard time discerning whether it was a woman trying to borrow or a person of color, he says, doesn’t matter. You’re gonna have to have Congress change it. Well NCRC, we propose the section 1071 and did get changed. And now the CFPB is going to be coming out with it but with the with the implementation. So you’re supporting that which makes you once again very popular with all your colleagues in the financial services sector but what would you say to your peers and other banks about why this is important why they ought to be behind it?
Demchak 29:45
Well, first John, with complete sincerity. I know our bank tries to do the right thing. I know we try to get capital to the right people. I know we have people on the ground who are emotionally invested in the city, access to their communities. Yet I also know the outcomes. If the mechanical outcomes aren’t what we desire, notwithstanding the best intentions and heart to go in it. And to me, that’s a, I got to remove the emotion and say it’s a mechanical problem, right. To fix a mechanical problem, I need data.
You know, I need to be able to measure. The outcomes aren’t on purpose, something’s causing. And so, you know, let’s get data. Let’s get on the ground. Let’s see what’s happening. Let’s measure and cause a change.
Taylor 30:48
Bill, I hope that you as one of the leaders in the industry are able to really
work with a lot of people who would agree with you in that thinking. Unfortunately, we’ve, we’ve run out of time, I think we could talk for another hour, assuming you had nothing to do, Bill. But, you know, I really appreciate on behalf of staff and board you taking the time out there and more importantly, for the changes and things you’re doing in the bank. I really appreciate it very much.
Demchak
It’s an easy thing to do. I’m sorry, I let your secret out. But now that I am gonna just tell you, thank you for 30 years of working on these issues.
Taylor
Wonderful. Thank you very much, Bill.
Demchak
Take care.
Taylor
All righty. You too.
