Co-author Scott Klinger
The father of Bank of America wouldn't recognize it today. The "built-to-last" institution he founded has turned into a "built-to-loot" operation obsessed with short-term gains.
Amadeo P. Giannini built Bank of America into the first nationwide financial institution. The Italian American's success hinged on his determination to challenge the notion that banks should benefit society's wealthiest members.
As the son of immigrants who had settled in California, Giannini knew than many Americans of modest means could greatly benefit from access to the banking system. In 1904, he opened the doors of the Bank of Italy in San Francisco and welcomed customers that others would not serve. He sold mortgages to aspiring homeowners with no prior credit. His business thrived.
Two years later, after an earthquake shattered most of San Francisco's infrastructure, Giannini made loans -- often on little more than a handshake -- to people who were eager to rebuild their broken community.
While helping others improve their lot and their communities, he built a booming, solid business.
In 1928, Giannini bought Bank of America. By 1945, it was the largest bank in the United States, with customers throughout the country. The demands of new business spurred Bank of America to innovate. It created the nation's first automatic check processing system, which enabled working families of modest means to open checking accounts. Years later, it offered customers the first bank-based credit card, BankAmericard. For the first time, the middle class could enjoy the convenience of credit cards, previously only available to the wealthy.
By the 1980s, Bank of America's built-to-last business model had given way to a built-to-loot system. The now giant bank recklessly pushed loans to developing nations, in a bid to reap large profits as extractive industries entered to produce oil, metals, and food for export. Many of the loans went bad, leaving the world's poorest citizens poorer still and Bank of America facing a financial crisis.
After many years of retrenching, it eventually began to gobble up other banks around the country. When the financial crisis erupted in 2008, Bank of America absorbed one of the nation's largest and most reckless subprime lenders, Countrywide Financial. Soon, with bad loans rocketing, taxpayers had to bail out Bank of America to the tune of $45 billion.
Amadeo P. Giannini must be rolling in his grave. The new Bank of America has become a modern-day version of the 19th-century banks that only served the wealthiest customers, a model he so wisely transcended. If he were alive today, Giannini might even have participated in the protests that marked the bank's recent annual shareholder meeting.
Over the last three years, Bank of America has extracted more than $28 billion of service fees from its customers. The bank notes in its recent annual report that its service fees fell $1.3 billion in 2011, largely because the Federal Reserve has placed limits on exorbitant fees for bounced checks.
It has foreclosed on the homes of hundreds of thousands of working American families. It sits on more than $120 billion in cash, and yet up until it recently agreed to the terms of a court settlement, refused to refinance the mortgages of those who have faithfully paid their bills every month only to find themselves owing more than their homes are now worth. Rather than making money available to those who want to rebuild our economy, Bank of America has parked more than $18 billion overseas, much of it in one of the115 subsidiaries it operates in tax haven countries.
Unlike its founder, who had little interest in amassing personal wealth and often worked without a salary, those who have followed at Bank of America's helm have lined their own pockets. Bank of America CEO Brian Moynihan pocketed more than $8 million in compensation last year. Moynihan's predecessor, Ken Lewis, took home even more in the two years before the 2008 economic earthquake unleashed a tidal wave of foreclosures.
Shifting our businesses back to "built-to-last" mode will require new rules that promote fair lending, consumer protections, and a smaller gap between CEO compensation and workers' paychecks. If we want to live in a "built-to-last" society, we'll need to rein in the unchecked power of "built-to-loot" corporations.