Sometimes even the good are punished. The fallout from the subprime mortgage market has hit the regional banks, even those banks that avoided the subprime mess. For example, Zions Bancorp, headquartered in Salt Lake City, didn’t touch the subprime market with a ten-meter cattle prod. And its loan loss rate is just 0.59% (the five largest banks have an average loss rate of 1.48%). Yet, Zions has taken a hit to its stock price. At one point, its stock was down 60%. One analyst noted, “They’ve been dragged down by a function of what’s going on in their markets.” This unjust systemic ripple is yet another reason for thinking through the consequences of actions that, while legal, raise ethical questions. What is permissible is not necessarily prudent. What you could do does not mean you should do it. Your actions bring down those who made prudence their guiding light. But, there is good news despite the beating Zions has taken for something it did not do.Zions will be fine. In fact, yet another fall-out from the subprime mess will be fewer competitors. The banks that will remain standing, including Zions, are the lesson. If you want to survive over the long term, you don’t trot down any permissible path; you follow the prudent path. Cream does rise. Zions was a hostage of competitors who did not understand the difference between what is legal and what is ethical. Subprime loans did nto violate the law; they did, however, flirt with disaster through their disregard of the very basic standards for extending credit. Their consequences are the loan defaults and, in too many cases, the FDIC “troubled” list. Zions will emerge as a bank, as its CEO notes, that is not “on the fringe” and does not do “silly things.” Silly, fringe conduct flirts with ethical boundaries. Shimmy up that close to the line and you just may be writing your own demise.Â
Full Disclosure: the author has done some work for Zions. But the bank had already charted its prudent path on subprime avoidance by the time I arrived.  My role was one of simply reinforcing ethical standards at Zions. It would appear they were there already.
