06/14/2010 05:12 am ET Updated May 25, 2011

Financial Reform: The Righteous, the Greedy and the Clubby -- An Insider's View

Bring together the righteous, the greedy and the the 'clubby' and you have all the ingredients for a good dramatic play. But, do they also apply to Financial Reform? Yes. Let's dissect the elements.There are many in the banking system who have every reason to be righteous, some were certainly greedy and 'clubiness' was redefined recently in congressional testimony by Kerry Killinger, CEO of WAMU.

The Righteous: They play by the rules, operate good companies, are assets to their communities and generally make the right calls. Most community banks fall into this category as well as many other banks of all shapes and sizes. And for this, more potential regulation?

Those outside of this category were either downright greedy or very aggressive. It is easy to understand the pressure on a public company financial executive. I was one for dozen years. There is constant pressure from analysts, shareholders and funds for double digit EPS growth.

There is additional pressure to 'keep up with the Joneses'. English humorist, Quentin Crisp, once quipped, "never try to keep up with the Jones, drag them down to your level, it is a lot cheaper."

If keeping up meant getting into subprime lending and other business lines to reap the large revenue streams, he was right. It was a tempting business to enter, because it was literally, by my actual calculation, ten times more profitable than conventional residential lending. Greed can takeover at some point, especially when the stakes are so large.

Many of the problems in the financial industry came from the lightly regulated players in the insurance and brokerage industries. They made buying the riskiest stuff possible for buyers around the world by offering derivatives, credit default swaps and subprime Mortgage Backed Securities. They were able to dodge regulatory supervision in the past, but less likely to do so in the future.

Now, saving the best for last...the clubiness factor. The banking industry has learned a lot by being very helpful to one another. I've always been impressed by the friendly nature of the competition, especially for an industry with a lot of capacity--too many banks chasing too few customers in most parts of the country. This made it increasingly difficult to be profitable. This factor may help explain why banks reached further for more income.

Kerry Killinger, former CEO of WAMU, took this concept in another direction the other day, with his congressional testimony that some big banks were part of the inner circle and were "too clubby to fail". He went on to state the benefits were obvious, for those outside the club, the penalty was severe." Mr. Killinger was a member of the club. I was too. We were both appointed members of the U.S. Federal Reserve Board's TIAC (Thrift Institutions Advisory Council) in 2008. Ten bank CEO's from around the country give feedback to the Fed in this capacity every year. We met regularly with Mr. Bernanke and the other Fed Governors. It is hard to see him as an outsider.

In the wake of the financial crisis, there is plenty of blame to go around. Everyone can look in the mirror and learn something. That goes for CEO's, senior managers, analysts, rating agencies, fund managers and shareholders.

Perhaps we need to re-examine our expectations for growth, ethics and transparency while we are at it. The market cannot deliver that which there are no buyers for.

Note: William A. Donius is the former Chairman and CEO of Pulaski Bank and Pulaski Financial Corp. in St. Louis, Mo. He remains a Director and Consultant to the bank. In retirement, he is an active board volunteer in the STL community and is writing a book. This essay represents his personal view and may not represent the view of the bank.

Donius was elected CEO of Pulaski Bank in 1997. He took the bank public in 1998 with Pulaski Financial Corp. NASDAQ listed PULB as the holding company. Under his leadership the bank grew from $168 million to $1.3 billion. Pulaski Bank is the largest purchase market, mortgage originator in St. Louis and one of the top three in Kansas City. Pulaski Bank was voted the Best Place to Work in St. Louis in 2007, received a Torch Award from the Better Business Bureau in 2008 and is ranked as one of the best performing smaller banks/thrifts by industry publication SNL.

Donius was appointed to a two-year term on the U.S. Federal Reserve Board TIAC Council in 2008. Donius served a four-year term on the Board of Directors of America's Community Bankers ending in 2007. In addition, he served as Chairman of for profit subsidiary, America's Community Bankers-Partners for two years.