Entering Walter Wriston's world today is a far cry from passing through his office gates as chairman of Citicorp, the powerful position he claimed for 14 years before his retirement in 1984.

To find Wriston any business day, you needn't go further than Citicorp's signature silver tower at 54th and Lexington in New York City. Once there, however, any resemblance to his old world ends. The barriers are gone. No uniformed policeman stands guard. There's no signing in, no plastic identification tags dispensed by a bored information desk attendant, and no secretary quietly emerging from hushed offices to escort his visitors in.

At one time these barricades were the natural accoutrements of the world-renowned CEO of Citicorp. However, as the chief executive-- even of the nation's largest bank-- a simpler regimen now prevails. A modest elevator in the lobby of Citicorp Center unobtrusively takes guests to his fourth floor door, which is unadorned, save for a small speaker that serves to announce each visitor's arrival.

The contrast to an earlier era continues upon entering his office where, in a modest, book-filled chamber more fitting of a college professor than an internationally known financier, the tall and elegant Walter Wriston proffers a congenial greeting. The warmth of the room and its inhabitant is indeed striking. More often than not writers are accustomed to being "fit into" the schedules of harried bankers who generally feel there are more important matters to attend to.

But then again, Walter Wriston could never be called a conventional banker. So there's no reason to think he would be a conventional retiree-- or that he would give a conventional interview.

When talking to Wriston, one quickly learns that he doesn't even particularly follow banking today, except as it relates to the matters that do interest him. Technology. American competitiveness. The global economy. Change. In a wide-ranging discussion with about the things that hold his prodigious focus, Wriston displayed the razor-sharp intellect that for nearly two decades characterized him as the most respected (and occasionally feared) banker in America.

BD: In reading your book, , I was struck with how very little of it is about banking. It's about change: what causes it; how to deal with it. Is that how you look at the world, in terms of change?

WRISTON: Yes, I wasn't interested in writing anything about banking. What I was interested in is the way the world is impacted by information technology and how it has completely changed the world. I had a ringside seat for 40 years watching that happen.

BD: When I was in college, a book called made the point that more change had occurred in the previous 10 years than had occurred in the past century. That was in the sixties. Has change accelerated since then?

WRISTON: It's accelerated by an order of magnitude. One of the ridiculous things coming from the current administration is that they think that some all-wise person can identify winners in tomorrow's technology. The fact is nobody knows where it's going to go. All the world is turning away from centralized direction of economies. This country is apparently turning back toward it. It's a transitory phenomenon, because it won't work.

I think the greatest example is how the media went ballistic about how the Japanese were going to rule the world with high-definition television. Anyone who had even been in a Radio Shack store knew that the Japanese high-definition television was analog-- which was yesterday's technology-- and that it would fail. Tomorrow's [technology] was digital. Now, of course, that's common knowledge. But we get these surges in our national psyche where somebody is perceived as 10 feet tall when they're really four feet tall. We had it in Silicon, Valley. I'm just very skeptical about anybody telling me what tomorrow's going to look like. It's just going too fast.

BD: So you don't subscribe to the belief that the "Japanese miracle" was a miracle of centralized planning?

WRISTON: No, of course not. If you read one of the great books of our time, , it points out that MITI, the great all-wise brain, wanted twenty-odd Japanese automobile companies to consolidate into three, just like General Motors, Ford, and Chrysler. The Toyota family resisted that and refused to consolidate. As they say, the rest is history. Yet now we see Mr. Gore talking about building a fiber-optic network in this country. We already have seven times the fiber optics in this country that Japan has. The bureaucrats simply cannot keep pace with scientific progress. It's that simple. Nobody can, and that's why America's future in the scientific area is very bright. You've got all these guys with gold chains around their necks in the Silicon Valley and Seattle, Washington in biotech and graphics software. It's just unbelievable.

BD: Have you been enthralled with the Silicon Valley for many years?

WRISTON: I worked out there, and I've seen what happened with DNA in biotech, and I've seen what's happening today on the design of computer chips, and that kind of thing. It's just getting faster and better and more remarkable every day. George Gilder's book, , is, I guess, the seminal work on the subject.

BD: In your book you talk about "intellectual capacity" as the knowledge necessary to make a product. You make the point that the ratio of intellectual capital to materiel will continue to favor intellectual capital. How far can that go-- or will we become a nation of Silicon Valleys?

WRISTON: There is intellectual capital of all kinds. One of the jokes of the world is that the market cap of Microsoft is about twice that of General Motors. Yet Bill Gates can walk past any customs inspector in the world and say, "I have nothing to declare." But in his head he has created this huge enterprise.

If he had walked in with a wristwatch or something you could see and feel, he'd have to declare that he's importing something. My point is that intellectual capital is totally mobile. It goes where it's respected and wanted and it leaves when it's not. I suppose the greatest example was during World War II, when Einstein and Oppenheimer brought nothing with them but their heads, yet they produced winning things. If this country is not hospitable to intellectual capital, it simply walks somewhere else. This is a new phenomenon in the world. Governments cannot constrain it.

BD: Peter Drucker deals with some of the same things when he talks about "knowledge workers." Do you share a common vision?

WRISTON: Peter and I are on the same wavelength. I'm a great fan of his. He has always been a person who sees the world a little differently. He has a new book called, , where he makes many of the same points I make in my new book.

BD: What about young people who will be entering the job market soon. Are they destined to be knowledge workers or become unemployed?

WRISTON: Sure they'll be knowledge workers. One of the myths of the world is that there is a line between manufacturing and service. There is no such line. I was struck one time when I went to a factory with the CEO of a major American company. He was telling me that real men who don't eat quiche also don't work in a service business. His point was: real men make things. So we walk into the factory and there are about 20 people on the floor. There's a guy up in the balcony with a couple dozen television monitors and a keyboard, and he's running the factory. I inquired of the fellow how he was classified. It was all software. There used to be a line between manufacturing and software, but there no longer is. Knowledge workers now create product that are as hard and as machined as anything else. But instead of running around with a clipboard, they do it by creating software to run digital drills or lathes or assembly lines or whatever. I guess my point is that the old vocabulary is no longer congruent with the real world.

BD: Are our schools capable of turning out knowledge workers?

WRISTON: Sure, they have been doing so for years. But there are a lot of people who will be left behind. In 1900 we had 20 million people on American farms. Today we have less than two million, and we feed the world. All of those 18 or 19 million went from rough work on family farms to the assembly lines. Now the issue is whether the people who have been displaced on the assembly lines, which is permanent, will be able to be retrained into some other occupation. The answer is some will and some won't. One of the anomalies of America is that we have arguably 80 or 90% of the best universities in the world, yet they say we have arguably some of the worst primary schools in the world. You say to yourself, if we have some of the best universities, and if we create more Nobel laureates than any country in history, how does this happen with such badly prepared people?

One of the answers to that dilemma is called choice. The last government program that worked was the G.I. bill of rights. When we all came out of the service, the government gave us a voucher which enabled us to go to any school. The result was that all the universities competed, and a wonderful system was produced. Meanwhile the primary schools were frozen; you had to go to the one in your neighborhood or you didn't go anywhere. One of the exciting things happening today is that choice is moving down into the school system. It's in the primary system in New York; it's in Milwaukee; it's in Minnesota. We're learning that if we're going to create the kind of people we need, we're going to have to give them better educations.

BD: In your book, you make the point that the information standard has replaced the gold standard. Do you see anything replacing the information standard?

WRISTON: No, I got a rather angry letter from somebody this morning claiming that I didn't understand the problem, that the gold standard was the answer to everything. I understand that, but my argument is that the technology is irreversible, and, therefore, the market makes a judgment every minute about how people run their lives. I don't see anything at all that will reverse that phenomenon. The market is now so huge that government intervention is just a costly failure. When I was a kid with Citibank we had a foreign exchange market in New York, and the trader had three assistants-- there were maybe five dealers-- and we did roughly $50 million a day. In those days if the Fed came into the market and told Chase [Manhattan] or Citicorp or Morgan to "go buy silver or sterling," it had a profound effect on the cross rate. They had enough horsepower to influence it. Today, with a market of a trillion dollars or two trillion or whatever it is, there isn't enough money in the world to influence the rate except on a temporary basis. So there's a structural change that, in my opinion, isn't going to go away.

BD: You give credit to the information revolution for fostering democracy throughout the world. With Eastern Europe and other countries disintegrating, how are you feeling about the prospects for democracy in the world?

WRISTON: I think that the concept of human freedom is also irreversible and that it is spreading. I also said in the book that we'll be creating a lot more nations and that creating all those nations is a lot different than the spread of democracy. So what you have now is the reassertion of ethnic and racial and tribal groups that are fighting all over the world. Those things aren't going to go away rapidly. On the other hand, look around the world at other countries. In Latin America, for example, 20 years ago, perhaps 80-90% of the leaders were dictators. Today maybe 90-95 percent of the countries are democracies. That's an extraordinary happening. And I don't think that's reversible. Now I'm not arguing that the spread of information is going to solve all the world's problems. It's not. It's going to cause problems also. Every wonder drug has side effects. You see it in Bosnia now, you see it in the former Soviet Union, you see it all over Africa. But nevertheless, the people who have seen CNN and watched the Berlin Wall come down and seen the Hungarian revolution are not going to settle, over time, for the authoritative governments of the past. I'm not saying it's going to happen tomorrow morning. But over time, there's no question that people, given the choice of freedom or slavery, opt for freedom. It's that simple.

BD: So you would say that what is happening in Europe now isn't a collapse of the potential for democracy but is a death rattle for sovereignty?

WRISTON: Yes. It's the reinstatement of antique prejudices and tribes that has been going on for 2,000 years. It's just like the Arabs and the Israelis. Those problems aren't going to go away either. On the other hand, very large segments of the world have turned away from authoritarian government.

BD: You've always been interested in lesser-developed countries. At Citibank, you talked a lot about them, and you pioneered lending to them. What does all this say about the prospects for lesser-developed countries? Are they going to be able to jump from where they are now into the information age, or will they go through an industrial revolution?

WRISTON: I think the most exciting thing at the moment is that, after years and years of stagnation, Mexico opted, with extraordinary courage and great skill, for a free-market society. And once Mexico went that route, the concept of free markets ceased to be a gringo idea and became an indigenous road to prosperity. So, as Mexico is becoming wildly successful, it's being copied by Venezuela and Argentina and Columbia and Peru and Chile. Chile started the revolution when Milton Friedman went down there. They have a real growth rate that's the highest of any place in the world except southern China, and that was masked by the fact that Pinochet was perceived to be an authoritative ruler and, therefore, out of sync with freedom. He left, and Chile is still doing extremely well. They adopted a privatized system. Actually the only country that hasn't gotten that message is the United States of America-- particularly New York State. So the rising tide, as Jack Kennedy said, lifts all boats. And it is rising all over Latin America and certainly in the Far East, on the rim of Asia, in Thailand, in Indonesia, and in the Philippines, to Korea, Taiwan, and Singapore. All of those are extraordinarily dynamic economies. They got that way by opening their markets. They stopped the centralized planning and all the other nonsense that has held back their people for years.

BD: What about the banking world in the U.S.-- how is it doing?

WRISTON: I think on the banking side we're in terrible shape. The people who brought us the House bank scandal have passed a bill to micro-manage the banking system. It's a disaster.

BD: How did that happen? Here we have the ABA, supposedly one of the most effective lobbying forces around, and somehow FIRREA and FDICIA slipped through.

WRISTON: It's really quite simple. The banking business never got its act together. At one time, the small banks across the country, in towns like I grew up in, perceived Citibank and Chase Manhattan and Bank of America as their competitors. Of course they were not. Their competitors were Merrill Lynch, with the CMA, the mutual funds, and the money market funds. To this day, they still perceive the money-center banks as their adversaries. The result is the big split between the "independent" bankers and the ABA and the money centers and so on. That split was exploited by the people who wanted to retain their monopoly-- by the insurance companies, who sit around and explain how difficult that business is, by the brokerage houses, and by the investment banks. In the meantime, General Electric and Westinghouse are eating our lunch.

Twenty years ago I said that the telephone company would become our biggest competitor and I got laughed out of the room. Then last year they got a credit card. They have a wire into your house and into mine. The delivery of financial services is going to go over that wire. Whether it goes over the telephone company's line or the cable company's line is an open question, but it's going to go there. So the banks, once again, have a comparative disadvantage. The banking system has to recognize that and work together, but there's no evidence that has happened.

The second thing is that there's no spokesman for American banking now, and I don't blame them. They're frightened. The regulators are totally out of control, and they are doing absolutely ridiculous things. People are afraid to say anything for fear of retaliation. That's a terrible thing to say, but I know a lot of people around the country and, after a few drinks, they'll tell you that.

So what do you do about it? What we're doing about it is to disassemble the banking system. For example: The real estate loans, which were a product of the first recession with the deflation of real assets in my lifetime, caused real harm. There were a lot of bum loans. But the regulators, in order not to be criticized by the Congress, have forced the write down of those assets to ridiculous levels. So if you want to make a lot of money, like General Electric Credit, you just go in and buy these portfolios at 20 cents on the dollar, or 40 cents, or whatever. Sit there for a couple of years, and you're going to make out like a bandit. But the banks can't sit there for a couple of years because of this write down.

Second, they put in capital ratios that are not at all congruent with every other financial institution. The theory is that high capital, which is to be desired, is a bulwark against failure. The facts are that every bank that has failed in the past 20 years exceeded the capital ratios of the regulators on the day it went toes up. The reason for that is very simple. When banks are rather shaky, their deposits migrate away from them, and they wind up with 100% capital coverage with nothing to cover.

The system is out of balance. It's always out of balance when the regulators set the standards. For example, if you've followed the literature the past few years, you saw how Congress and the regulators talked about how we'd run out of radio spectrums. There's no more room, they said. Well, that was one of the most ridiculous statements of all times. The technology now moves it up to ultra-high frequencies, and there is no crowding of the spectrums. The same is true on regulating banks. You have companies that are selling insurance, mutual funds, money market funds, mortgages, credit cards, or whatever, and they're not called banks. They are called something else. Yet the regulators act as though banks were a monopoly. That's been a problem for 20 years.

BD: Are there any regulations you find especially unreasonable?

WRISTON: The view is widespread that regulations in general have been so draconian that we really have a regulatory recession. The reason they're draconian is that Congress is sitting on their backsides in Washington telling regulators, "You caused the S&L failure," which, of course, they didn't, and they're not going to get caught again.

You may recall during the last month of the election a couple of professors somewhere got nationwide attention by explaining that all the banks were going to fail the day after the election. Do you remember those two fellows? They were the darlings of the media; the only problem was, they were wrong. But that was the atmosphere. I don't know how you solve that, but it's a problem. There is no regulator telling General Electric Credit that they shouldn't make a loan. And there is no regulator telling Merrill Lynch that they shouldn't make a margin loan. In the real world today, if somebody comes in and asks for a loan you'd normally make, but you know that if you made it the regulators would make you write it off and you might lose your job, you don't make the loan.

I bring it down to a human level. When New York City was in crisis, I went across the country selling bonds for the city. I'll never forget a guy in St. Louis that taught me a good lesson. He said, "Walt, I hear what you're saying: the bond's going to get paid. I believe you. But I have a wife and three children and a mortgage, and if you think I'm going to buy anything with the name New York on it, you're out of your cotton pickin' mind. I'm not going to subject myself to the criticism of the regulators." Now that's not philosophy, that's not macro-policy, that's the real world where the rubber meets the road.

What has happened in this country is that loan officers have been traumatized by the spectre of getting fired because the regulators don't like the loan. I heard of one loan made by a money-center bank, not Citicorp, where the regulators told them to write it off. They pointed out that it was carried on their books at 40 cents on the dollar, and the guy said it was worth nothing. Before it was all over, it was clear the loan would be paid in full, as it was. The regulators said, "That's irrelevant, I want you to write it down anyway." They had to. That's an extreme case, but we just have to lighten up the atmosphere. Everybody's going to make mistakes.

BD: Just as loan officers are getting gun-shy on domestic loans, banks seem to be pulling back globally at precisely the time the global economy is expanding.

WRISTON: From a national point of view, that's one of our biggest problems. There's only one global financial institution left in the world: my alma mater, Citicorp. They've had a lot of problems, but the fact is they have viable operations in a hundred countries. Chase has pulled back, and Morgan is out of the traditional banking business, though they do merchant banking very well. Bankers Trust is out of the banking business; they've publicly announced they want less than 10% of their assets in loans. B of A has pulled back from overseas. The British banks are all specialized. The German banks have never been global institutions. So when you have added value in all of these countries, who's going to finance it? It's going to be a major problem.

BD: Along the same line, you were an early advocate of lending to third-world countries and took a lot of criticism for it. Any revisionism in your views of third-world lending?

WRISTON: No, I think it's quite interesting that we were watching the wrong country. The process that was put in to monitor the loans and crank them up and down was said by all the regulators to be the model for the world. It all worked very well for a long time. Then, the one country we were not looking at, the United States, threw it all into disarray. Paul Volcker went to Basel and they told him that 12% inflation was not satisfactory and that he had to do something about it. And, very properly, he came back and he stopped the wheels of the world. He gave us the greatest depression since the thirties, and all American imports stopped. So the third world's exports, which were paying the loans, were denied. The export ratios that looked good on Monday were a disaster on Tuesday--not because of what they did, though lord knows they made mistakes, but for what we did. But what goes around comes around, and after a period of seven or eight years, I read in the paper that the assets we traded those loans for now exceed the original value of the loans. So they're now more than fully recovered. Where we made a mistake was in not watching our own country carefully.

BD: Let me come back home for a minute. It's always interested me that, for the talk of efficiencies in consolidation and size of banks, we still have community banks achieving twice or more the return on assets that money-center banks achieve. What does that say about optimum size and profitability?

WRISTON: There's a machine shop in Brooklyn that has probably a higher return on assets than General Electric. What that means is you need both of them. There are a lot of community banks that are very well run and make a great contribution. There are a lot of money-center banks that are doing the same. What it means is they're in a different business. That's fine. We used to have 30,000 banks in America in 1928 or 1929. We lost about 15,000 in the Depression. Now we have 12,000 or so. Probably if we had 1,000 we'd do just as well. Canada has six or eight. England has five or six; Germany, about the same. We're the only country in the world with this wild system with all these banks. It makes this system vulnerable. A community bank with 100 percent of its loans in a wheat crop with a boll weevil coming over the hill has no place to go. It survives because the regulators have looked out the window over the years.

On the other hand, look what would happen if we had nationwide banking during a rolling recession like this country has had in these last seven or eight years? While things were terrible in New England, they were great in California. When they were awful in Texas, they were good in New York. If you had a nationwide spread, the system survives. That's what happened in Canada. No bank in Canada failed in the thirties. When the fish weren't biting in Newfoundland, the wheat was coming in Manitoba. That's the whole function of banking, to spread risk. Community banks can't do that.

BD: Do you think we'll ever see a Canadian or British model here? How many banks would you see in the year 2000?

WRISTON: I think the question is: What is a bank? It's perfectly clear that, with the current regulatory structure and attitude, the business of banking will be redefined. The information society has given big corporations the ability to know about each other. That's created the commercial paper market, which now exceeds all the bank loans in New York put together. That business is gone-- dead, forever. That was the bread and butter when I was in banking. Now the information society has reduced the amount of inventory that companies have to carry by creating a direct line into the producer. So inventory, more bread and butter, is a wasting asset. It's still there, but it's not going to last very long. Then you have retail banking. You have the CMA of Merrill, which was a brilliant idea, and you have everybody and his brother issuing credit cards-- from J.C. Penney to the telephone company. They're all tied to some goody; with the General Motors card, you get $500 off a car or something. Congress gets all excited about banks tying things in, but they apparently look out the window when all these other people do it. The market for banks is changing very rapidly, and only those banks that adapt to it will be able to survive.

BD: With shrinking numbers of banks and, as you said earlier, banking in "terrible shape," would you encourage your kids to go into banking today?

WRISTON: I don't think I'd advise my kids one way or another. I think there's still a lot of excitement and interest in banking. It still has a future. But it's a different future than it used to be. As Kierkegaard said, "The future isn't what it used to be." He was right; it's going to be different. When I came with Citibank, we earned $17 million that year before loan losses. Today it's not the same institution, and they're not doing the same business in the same way. I don't know what tomorrow's going to bring. Ten years ago people would have said it was ridiculous that I could take my Citicard to Barcelona, get cash and charge it to my account. It's a fact today. Whether home banking will ever catch on, I don't know. I'm skeptical, because I can't think of anything I'd rather do less than balance my checkbook at home. But maybe it will catch on. What we're seeing is the convergence of computers and television. In time you'll have one screen in your house. You'll buy your pants, ties, and travelers checks through that system. What that will do, I don't know, but it's certainly coming.

BD: If you wouldn't necessarily advise your kids to go into banking, how about advising a good friend on joining a bank board today?

WRISTON: Bank boards are being sued day after day in the famous blame-shifting that is so typical of the bureaucracy we have. It's always someone else's fault. And some of the blame was well-deserved-- there were some crooks around. But basically there were very few crooks in the system; fewer than practically anyplace else you could think of. The liabilities that a bank director takes on these days are horrendous. The defenses against the suits are expensive.

One of the biggest problems we have in this country is the plaintiffs' bar. People are settling suits of which they are totally innocent, simply because there isn't enough money in the world to defend them. It's happening all over the country, and I think it's a tremendous problem. Honest mistakes have become crimes. I suppose the one, central fact that people forget is that every time you make a loan, you make a judgment about the future. And nobody sees the future perfectly clearly. So you make mistakes. Now they're figuring out that we should look at people's character-- how wonderful that they've finally discovered that! So if you've got a lot of collateral, you're okay, but if you make a loan to an honest man, let's write it off. It's ridiculous. This is part of the mechanistic stuff that's going on.

All I ever learned about the business was from Howard Sheperd, the former chairman of Citibank and one of the great men of my time. He used to tell us that you can't do good business with bad people, but that it's almost impossible to get hurt doing business with good people. And that's the whole deal. The rest of it is documentation and so forth-- which is great-- but with good people acting in good faith, you're going to get your money back. With bad people, even if they have a zillion dollars in collateral and 42 lawyers, you're going to take a loss. |BD|