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Special
publisher's profile: Banking
Virginia's top banking
officials on the economy, the banking industry and doing
business in Virginia.
The major banks in Virginia
are a driving force in the state’s economy and
a major influence on the regions they serve. We recently
interviewed four top banking officials in Virginia -
James C. Cherry (Wachovia, N.A.); G.S. "Sandy"
Fitz-Hugh (Virginia Bank of America); C.T. Hill
(SunTrust Banks); Barry Fitzpatrick (First
Virginia Bank); to find out their views on the economy,
technology and the banking industry.
Are you
concerned about the U.S. economy slipping into a period
of deflation? This scenario has hit Japan's economy
for a decade. Why is the U.S. situation different?
James C. Cherry (CEO, Mid-Atlantic
Bank, Wachovia, N.A.): Our outlook is that deflation
is not likely. You may have some individual segments
but the danger of deflation as a broad-based systemic
issue is relatively small. The more likely scenario
is that this year will be a little more of the same
from last year. Most people started out last year hoping
for a turnaround in the third or fourth quarter and
we had a kind of a solid "ho-hum" feel for
the year. This year really looks like the same forecast,
looking toward the fourth quarter for a rebound.
Although it is interesting that
our sense of feeling is built up by a relatively long
period of exaggerated growth in the economy, some of
which was even false growth, now as we look back in
retrospect. So we may have to change our outlook on
what we consider to be good economic growth. Three and
half to four percent (growth) may feel sort of "ho-hum"
and yet, maybe that's really a gangbuster. The consequence
of these past highs is that you also have some corresponding
lows that you are not prepared to deal with. The current
moderate highs might mean that the lows will also not
be so low.
I'm going to stay on the cautionary
side and say that we don't see a chance of a double-dip
recession. There is nothing going on right now that
would lead us into a second recession. Of course, there
are things that we cannot control, like a possible war
with Iraq that could influence the economy. If it (a
war) turns out to be pretty quick, it probably won't
affect the economy, but if it turns out to be something
long and drawn out, it probably would have an adverse
affect. If that happened, I guess it would be called
a double-dip but it's probably just a second one (recession)
caused by many things going on externally.
Barry Fitzpatrick (Chairman,
President, CEO, First Virginia Bank, N.A.): The
economy having observed both their economy and their
banking industry. And, while deflation has had a significant
impact on Japan's economy for the last decade, there
are many differences in both their economic policies
and practices as well as their banking system that would
make it difficult to use Japan's results as a measurement
tool for the U.S.
The U.S. banking system is quite
diverse and includes significant activity in the broad
areas of consumer banking. This diversity, when combined
with the intense regulatory oversight in the American
system, provides both stabilizing and "stop gap"
measures that have not been similarly utilized in Japan.
As a result, while I think we need to be prepared for
any economic change, I'm quite confident that the U.S.
and its banking industry will be able to effectively
address those changes.
There are so many pundits
in the press and politics willing to explain exactly
what the economic impact will be of either a war with
Iraq or a continuing war on terrorism that, I believe,
I would leave that speculation to them. However, the
war on terrorism is extremely serious and at the same
time of utmost importance. Make no mistake about it,
there will be an effect on the U.S. economy, but in
my opinion, it will be more than offset by the risk
of continued, unbridled terrorist acts. I am confident
that our government is taking the right steps to guide
us through this dangerous time and, even more importantly,
that the American people possess the strength of character
to persevere.
G.S. "Sandy" Fitz-Hugh,
(President, Virginia Bank of America): Everything
we see - the economists we have in the bank - tell us
that they don't feel deflation is a problem at this
point. We've got certain segments of the business that
are still very strong. Amazingly enough the automobile
industry has been strong and the housing industry has
been strong. There are other parts of the economy that
are not, but overall we don't feel deflation is an eminent
problem.
We're also not seeing a double-dip
recession. We're seeing things bump along, probably
not tremendous growth, but we do see some growth - GDP
in the 2% range but not particularly strong. We're seeing
some good signs in the technology business which has
not looked good over the last two or three years. A
pick-up in chips sales which is a good sign. One of
the things we're going to see in the computer business
is cycle buying. Like cars, we are going to see people
replacing their computer every two or three years for
their businesses as well as for their personal use.
That cycle has been down for the last couple of years
and we'll now see a comeback of pent-up demand.
C.T. Hill (Chairman, CEO, SunTrust
Banks, Inc.): I noticed in your February issue you
mentioned a Japanese (economic) comparison. But we currently
have economic growth, we had economic growth all last
year, we had it in the fourth quarter of last year and
we are having it through the month of January. It may
not be robust, but it is still an expansion, so from
a deflationary standpoint we don't see any signs that
we are going to go there. In regard to (drawing a comparison
to) the Japanese economy, if you take a look at the
strength and diversity of the U.S. economy across lots
of sectors, we have more diversity and more overall
strength. And even with our stock market today, being
down from its high of eleven thousand, it's nothing
like they are experiencing in the Japanese economy.
We don't see a double-dip
coming. We think the thing that is getting in the way
right now is the war. In dealing with our customers
on the commercial side there are people who are talking
about doing plant expansions or adding equipment. At
this point they are just waiting. People will just not
bet into the prospect of going to war.
Now, the real question is
can we compare this war, if we go to war, to the Gulf
War in 1991? If we can, it would be good. If you take
the time frame under which that war was fought, and
it was pretty crisp, we should start to see the economy
rolling by the last part of this year. You will see
some pent-up demands in the marketplace.
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