Bankster Rap?

We've noticed a rise in the use of the word "bankster" lately -- a blend of "banker" and "gangster" that Wiktionary defines as "a personification of bankers as criminally irresponsible." An early-February Google search turned up 209,000 instances of the term, which was first made popular in the early 1930s by Ferdinand Pecora, a former Manhattan assistant district attorney who ran an investigative commission that autopsied the U.S. financial industry just after the Great Depression. (The commission's findings paved the way for the Glass-Steagall Act.)

In one recent example, Jesse Jackson used the word in a speech about financial system reform. (He's involved in a group, Rainbow/PUSH, whose Wall Street Project is pressuring banks to modify mortgages). "I see whole towns sinking because of bankster power," Jackson told followers at an event in New Haven, Conn. in January. "We're all worried about the street gangster. What about the bankster?"

Yet the anger embodied in the term usually is not directed at traditional bankers who make loans and take deposits. It's reserved for the large-firm executives who got swept up in (and in some cases, instigated) the subprime mortgage-backed securities bubble and then received some form of taxpayer bailout, including executives at Goldman, Bank of America and AIG. Some of the regulators perceived as facilitating financial firms' bad habits, such as Henry Paulson and Ben Bernanke, also have been dubbed "banksters" by bloggers and press, as have financial executives receiving enormous pay packages.

What will it take to soften this bitter public attitude toward banks that lingers two years after the worst of the financial crisis has passed? One idea is to separate banks from their higher-flying, risk-taking (dare we say, bankster?) Wall Street brethren. Former Federal Reserve chairman Paul Volcker and former Citi chairman John Reed recently called upon legislators to forbid banks from proprietary trading. In Volcker's testimony before the Senate Banking Committee, he noted, "When the bank itself is a 'customer,' -- i.e., it is trading for its own account -- it will almost inevitably find itself, consciously or inadvertently, acting at cross purposes to the interests of an unrelated commercial customer of a bank."

But the vast majority of bankers avoided the subprime crisis, maintained high credit standards, didn't underwrite or sell subprime-related securities, and don't take home millions in pay. In fact, they are refining the models they use to assess risk, increasing capital reserves, stress-testing their institutions and creating real-time views of risk. As these efforts bear fruit and banks disassociate themselves from Wall Street, the unflattering label "bankster" should fade from use.