A New Yorker cover story taking on the “gospel of innovation” chose an unlikely champion for its example of how banks should do business.
Author Jill Lepore celebrates TD Bank for — resisting the urge to innovate:
In the late 1990s and early 2000s, the financial-services industry innovated by selling products like subprime mortgages, collateralized debt obligations, and mortgage-backed securities, some to a previously untapped customer base. At the time, Ed Clark was the CEO of Canada’s TD Bank, which traces its roots to 1855. Clark, who earned a Ph.D. in economics at Harvard with a dissertation on public investment in Tanzania, forswore Canada’s version of this disruptive innovation, asset-backed commercial paper. The decision made TD Bank one of the strongest banks in the world. Between 2002 and 2012, TD Bank’s assets increased from $278 billion to $806 billion. Since 2005, TD Bank has opened 1,300 branches in the United States, bought Commerce Bank for $8.5 billion, in 2008, and adopted the motto “America’s Most Convenient Bank.” With the money it earned by expanding its traditional banking services—almost $4 billion a year during the height of the financial crisis, according to the Canadian business reporter Howard Green—it set about marketing itself as the bank with the longest hours, the best teller services, and free dog biscuits.
Now, the steps taken above are laudatory, but the innovation Lepore is discussing in this case are products like credit-default swaps rather than, say, remote deposit capture of checks. Opening 1,300 branches since 2000 may not ultimately be considered the wisest investment, but certainly fits the criterion of being “not innovative.”
Lepore’s larger point is that disruption is an appropriate boogeyman for corporations in an age “seized by terror.” Disruption is cyclical, reappearing throughout history, Lepore wrote: “The eighteenth century embraced the idea of progress; the nineteenth century had evolution; the twentieth century had growth and then innovation. Our era has disruption, which, despite its futurism, is atavistic. It’s a theory of history founded on a profound anxiety about financial collapse, an apocalyptic fear of global devastation, and shaky evidence.” Disruption needs to be studied further rather than accepted as gospel, Lepore argues.
Fair enough, but this innovation backlash should not result in complacency on the part of bankers.