Remarks by Citi CEO Michael Corbat The Economic Club of Washington

Video credit: Economic Club of Washington, D.C.

 

Good afternoon – I'd like to thank President David Rubenstein, Vice President Carol Melton and all the other organizers of this event for giving me an opportunity to speak on a subject that for obvious reasons I care a lot about.

That would be the present and future of banking, not just in the U.S. but globally.

I assume everyone who's been following the presidential campaign has observed that many of the candidates, party affiliation aside, have quite a lot to say about the business I'm in.

And to be frank, it's no surprise that seven years after the financial crisis, banks are still facing scrutiny from a variety of quarters: candidates, regulators, politicians and of course, the general public.

Yet nearly all sides of the debate seem to agree that the answer to all these questions boils down to the same policy response, both in this country and abroad.

What's clearly needed, they say, is even stronger and stricter regulation of financial institutions, particularly large global ones, like my own.

To be clear, Citi has supported financial reforms such as Dodd-Frank and Basel III.

Yet to me there seems to be an element missing from the current conversation. And that's an honest discussion and appraisal of the real value that banks of all sizes contribute to our economy – on a local, regional, national and global level.

Let me touch first on an issue that's still -- justifiably -- on many minds:

That's the question of whether our global financial system is safer now than it was before the financial crisis. And whether, in fact, the size and scale of some banks today may still pose a threat to achieving our common goal of making our financial system safer and sounder.

Let me answer these questions by speaking to the company I know best: Citi.

First, we're a much different institution from what we were before the crisis.

Second, our firm isn't big just for the sake of being big — we're deliberately and globally scaled to serve our clients in communities and cities around the world.

And third, in an era of globalization, this country – indeed all countries -- needs banks like ours to help multi-national companies grow, expand and remain competitive in a rapidly changing economic environment.

As a company, we've taken responsibility for our actions — and it was right and necessary for us to do so. Which means that today, we can honestly describe ourselves in four words: simpler, smaller, safer and stronger.

That's because in many ways, we've gone back to our roots, focusing on providing banking services to consumers and institutions. We've shed more than $700 billion in non-core assets and 60 non-core businesses around the world. We no longer have insurance businesses, hedge funds, private equity funds and we aren't an asset manager or retail brokerage.

We've completely rebuilt our capital base and liquidity — not just back to, but far above, pre-crisis levels. And we've lowered our leverage by more than half and overhauled our risk management.

So for me, the ongoing debate about what role banks – and especially big banks – should play in our increasingly interconnected global economy all comes down to one thing. In the end, we can't do our jobs if we fail to gain and retain the trust of the people and communities we serve around the world.

Telling our story in a more compelling fashion is a challenge we'll just have to get better at if we want to truly fulfill our mission.

And our mission is, in the simplest terms, to drive economic growth and progress.

Basic banking — taking deposits and lending — traces back to loans of grain and other commodities at least 4,000 years ago. To some extent finance's current unpopularity is nothing new. Our industry's reputation inevitably suffers during and after financial panics and crises like the Great Depression or the Great Recession.

But despite such volatility in the court of public opinion, banking has always been essential to growth and innovation. In fact, if you look at a long-term growth chart — one going back centuries — you'll see a line that stays mostly flat and low until about 1700. That's more or less when the modern financial system took the first outlines of its present shape. And from that point on, the line shoots dramatically upward.

Yet even if many of us appreciate the critical contribution that financial institutions of all types make to the advancement of local, regional and national economies, few are interested in looking beyond the basic role banks play in their personal lives, to safeguard money, deposit paychecks and pay bills. But the reality is that just about every aspect of modern life is profoundly touched by modern finance.

From schools to roads and airports and financial services like insurance, to the many innovations that make life exciting, none would be possible in scope, extent, or quality without a modern financial system. Even governments operating at every level — local, state and federal — depend on the banking system to finance their operations, build infrastructure, transfer funds and pay their employees.

Yes, our global economy is sprawling and multi-faceted. It takes financial products and services well beyond just lending to keep today's economic engine running and in gear.

So let's be clear here—the louder critics of the banking industry do not aim their arguments at banking itself, but rather at the so-called "big banks."

Before digging a bit deeper into that raging debate, I'd like to provide some context.

First, this argument gets most heated, ironically enough, right here in the U.S., despite the fact that the world's biggest banks are overwhelmingly located in Europe and Asia and that only one of the top-ten largest banks is American. The U.S. banking system is also less concentrated than its peers overseas, where big banks hold a much higher percentage of total assets in those financial systems.

That said, there's no denying that some banks — including the one I lead — are large. But we're large for defined and specific reasons. Put simply, we're appropriately scaled to serve our clients, and our size and our scope reflect the expectations and needs of those clients.

So what do global banks do? They help clients meet payroll, finance supply chains, manage cash, and exchange currencies, in addition to core lending across a range of timeframes and terms. We support thousands of companies of all sizes and sectors that create jobs and drive economic growth.

Not just established companies and multi-nationals need our services. For today's start-ups hoping to become tomorrow's giants, sources of early support vary from angel investors to venture capital. But in the end, all of them look to the capital markets to redeem those investments through initial public offerings and the liquidity provided by the securities market. Individuals also rely on the capital markets to fund and grow their pensions, retirement accounts, college savings plans, and other vehicles for meeting their financial aspirations.

Citi's competitive advantage over our domestic and international peers is a network that spans 100 countries. In some of these nations, our presence dates back more than a century. For a client looking to break into a new market or expand in an existing one, Citi's long-established, on-the-ground expertise is invaluable.

Citi first came into being as a trade finance bank more than 200 years ago, when the charter of the First Bank of the United States expired and merchants banded together to pool capital and export goods.

That most fundamental of human economic activities – trade -- still lies at the heart of our mission. Every day, we — and yes, other big banks — help American firms compete on the world stage, create jobs and sell their products in markets around the world.

Last year alone, Citi facilitated some $600 billion in trade flows for our clients, about half of that for U.S.-domiciled firms or their overseas subsidiaries. When Apple opens a store in South Africa or Caterpillar ships a tractor to Thailand you can be sure an American global bank will be there to support them.

From the perspective of Coca-Cola or General Electric, having to navigate 20 or more different banks on a daily basis, handling thousands or even millions of transactions per day, would be a nightmare.

And if they can't get these services from an American bank, there are plenty of overseas banks that would be happy to step in — or at least try. Policymakers who want to eliminate large banks — but only the American ones — should at least understand that even if we were to disappear, the demand for our services wouldn't. Far from it: those services would simply be outsourced to other banks in other countries.

As for our industry colleagues – the small, mid-size, regional and community banks across the country – though some maintain that our growth has come at the expense of theirs, the reality is that regional and community banks are really not our competitors. Many of them are our clients. Rhetoric aside, if banks like ours just disappeared, the jobs of our smaller peers would actually become harder, not easier.

Banks also create jobs, directly and indirectly. The six largest banks in the U.S., for example, collectively employ about 1.15 million Americans. According to the Bureau of Economic Analysis, every financial sector job creates and supports more than one additional non-financial sector job – bringing large banks' total employment contribution in the U.S. alone to approximately 2.5 million jobs.

That's more than 1 out of 50 private sector jobs in the U.S.

Large banks are also critical to job creation in less direct ways. We provide 40 percent of all small business loans, 85 percent of all consumer credit, and continue to service 70 percent of all mortgages.

Financial institutions are playing a key role in the recovery. Lending by banks to American businesses has increased by $230 billion over the last two years, helping fuel a recovery that's finally gaining steam, even if it's distinctly uneven.

And because we at Citi are committed to supporting small businesses and helping to create jobs, four years ago we made a pledge to substantially increase our lending by providing $24 billion in capital over three years to small business across the country.

That was a major increase in our engagement with these critical clients, but the good news is that not only did we surpass that goal we successfully sustained those elevated levels and have not looked back. In 2014, we lent an additional $9.2 billion to American small businesses - more than double the amount from five years ago -- and today we're on track to approach $10 billion in small business lending in 2015.

We also work with state and local governments to finance the construction of necessary infrastructure. Last year we underwrote more than $100 billion for projects ranging from schools to water mains to highways, and over the past year financed the construction of more than 30,000 housing units, of which approximately one third are designated for Seniors.

We financed just under $4 billion in capital for affordable housing projects - including some right here in Washington where we helped rebuild housing units at places like Fairfield Park.

Beyond our business activities, we're equally committed to the communities we serve. We can't be indifferent to the larger challenges facing our country, and there are few issues more pressing than the widening wealth gap. It's simply unhealthy for any society to fracture this way. So we're doing our part to help young people find jobs and be able to participate in the economic growth our country is experiencing.

That's why we launched Pathways to Progress, a significant financial and employee engagement commitment designed to jump-start the career readiness of 100,000 low-income youth in ten target cities. The program is helping young adults set educational and career goals, develop the necessary skills for the 21st century and contribute to the economic competitiveness of our cities and our country.

In less than two years, we've impacted over 70,000 young people and invested $35 million dollars, putting us on a path to exceed our initial three-year goal of investing $50 million to impact 100,000 young people. In addition, more than 1,000 of my colleagues have engaged in this effort as volunteer mentors and coaches.

All of which brings me back to an earlier point.

Citi employs about 75,000 people throughout the country — the vast majority of them not working on Wall Street, but in branches and operations centers, servicing loans and mortgages — in short, helping customers and strengthening communities. It's important that we in positions of leadership in finance continue to inform people about what they do, and the value they provide.

I sincerely hope that everyone here today - business leaders, thought leaders, policy makers, legislators - many of whom understand all the good things banks do for our economy and society -- will add your voices to the chorus.

Thank you. David – I look forward to our conversation to come.