The Story of Nationsbank: Changing the Face of American Banking

By Howard E. Covington Jr. and Marion A. Ellis

Charlotte-based NationsBank, formerly named NCNB, became one of the nation's leading financial powers following its acquisition in 1988 of First Republic Bank of Texas and its merger in 1991 with Atlanta-based C&S/Sovran. The authors provide a corporate history of this maverick financial institution.

• Language: English
• Publisher: UNC at Chapel Hill Library
• Release date: Jun 15, 2018
• ISBN: 9781469647814

Howard E. Covington Jr.

Howard E. Covington Jr. is a former journalist who has collaborated with Marion A. Ellis on a number of books, most recently Terry Sanford: Politics, Progress, and Outrageous Ambitions and The North Carolina Century: Tar Heels Who Made a Difference, 1900-2000. Covington lives in Greensboro.

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Preface

Thirty years is a relatively short time in the life of most financial institutions of the size and range of NationsBank. Chief executives of banks in America’s traditional financial centers can trace their lineage directly to predecessors who managed through the panics of the late nineteenth century, the creation of the Federal Reserve System, or the despair of the Great Depression. Such accounts have been recorded in other books.

When Addison Reese began putting together NCNB (North Carolina National Bank) in i960, he recognized the contributions of the antecedent institutions whose founders organized their banks in the nineteenth century. But Reese’s vision was firmly focused on the future and a new kind of bank that would challenge the status quo in North Carolina. He was more intent on building a new culture than on nurturing those that he inherited.

Reese’s basic vision has remained steady for more than thirty years. Only the scope of his goal has changed. His successors, Thomas Storrs and Hugh McColl, have taken NationsBank far beyond the borders of a single Southern state, positioning it to be among the first to offer customers a nationwide bank. Through these three chief executives, the NationsBank corporate culture and heritage were formed. This is the story of that vision and the people who continue to extend its reach.

Most institutions that grow and expand as rapidly as NationsBank find little time to spend on filling their archives with the detail necessary to tell the complete story. Only writers lament such a loss. Executives are more intent on the opportunities of tomorrow than reflections on the past. Their quest hurries an organization forward, but at the expense of preserving the trail that led to the present day.

Fortunately for us as writers, many of those who experienced the development of NCNB and the creation of NationsBank are still available to relate their part of the story. Moreover, they were encouraged to do so for this book by Hugh McColl, whose service with NationsBank predated NCNB and whose rapid rise through the ranks permitted personal experience in nearly all of the bank’s major successes and shortcomings. He was not reluctant in his recollection of either, and his acceptance of this project facilitated the full participation of others.

In addition, the culture of NationsBank has been one that promoted internal and external communication, much of which helped to tell the story of the early years. We drew upon editions of early corporate newsletters and magazines to trace developments from the beginning.

Of particular assistance in defining the development of the first half of the life of NCNB was a series of interviews conducted by John Jamison, a former newspaperman and NCNB corporate communications officer. Jamison was commissioned by Thomas Storrs in 1982, following the bank’s entry into interstate banking, to interview many of those who had been present at the merger of the Greensboro and Charlotte banks to form NCNB, as well as others whose careers preceded the formation of NCNB. Jamison reached nearly all of the principals, and he captured material that otherwise would have been lost to us nearly a decade later.

Jamison’s complete and unedited interviews were part of the NCNB archives when McColl revived interest in a book on NCNB after the bank’s inventive and surprising victory in outbidding major competitors to acquire First RepublicBank of Texas. Initially McColl had in mind a comprehensive account of the Texas coup. As part of that, members of the NCNB Texas team were encouraged to write their own recollections of the experience. In discussion with the authors, however, the project was expanded to include the development of the company to that point and, with the further C&S/Sovran merger, the subsequent reshaping of the nation’s banking industry.

As the writers commissioned by NationsBank for this task, we were familiar with the growth and development of NCNB. We had both worked as reporters at the Charlotte Observer during the three decades of NCNB’s existence, often reporting as a team on major projects, including the paper’s Pulitzer prize-winning series on occupational health in the textile industry published in 1980. More recently, we have worked together on freelance writing projects. We are also each involved with a periodical publication—Ellis with a monthly business publication in Charlotte, and Covington with a regional gardening magazine in Greensboro. Ellis is the author of a history of Myers Park Baptist Church in Charlotte. Covington is the author of a history of Belk Stores, published by the University of North Carolina Press in 1988, and a history of Linville, a mountain resort in North Carolina, written for the occasion of its 1992 centennial.

We were offered complete and unrestricted access to the people and the archives of NCNB for this project, which was supervised by Executive Vice President Joe Martin, a scholar and a participant in the bank’s major expansion efforts of the last decade. Martin’s appreciation for the bank’s culture and experience was demonstrated in his own detailed recollections, which he reinforced with his notes and memoranda produced during or immediately following crucial events in Florida and Texas. As a published author, Martin was sensitive to the importance of detail, as well as to the need for accuracy and editorial freedom in order to produce a manuscript that would be both meaningful and interesting.

We also wish to thank the members of Martin’s corporate communications staff, headed by a former Charlotte Observer colleague, Richard Stilley, who facilitated the location of photographs, speeches, and other items requested during the research for the manuscript.

We also appreciate the interest of Pat Hinson, Hugh McColl’s chief assistant, who always could find time in her boss’s busy schedule for interviews as needed during our two years of research. She also was able to provide a unique perspective on the growth of NCNB and NationsBank: her own career at the bank began in the late 1950s when she took a job as a typist for American Trust Co.

Finally, we thank our spouses, Gloria Covington and Diannah Ellis, who overlooked the stacks of material that overflowed our work area, accommodated schedules that interrupted family affairs, and provided counsel following extended writing sessions that often left us all drained.

Chapter 1 Who Are Those Guys?

Thrusting into the Carolina sky above what a generation ago was merely another ambitious Southern city, a sixty-story office tower designed by Cesar Pelli stands at the center of Charlotte, North Carolina. The spires atop the building, which reach high enough to redirect the landing patterns of airliners, are a symbol for NationsBank, the newest major contender among the nation’s financial heavyweights.

With more domestic deposits than New York’s Citibank, market capitalization to rival J. P. Morgan & Co., more branch offices than almost any competitor, and assets of nearly $120 billion, NationsBank is a curious phenomenon. Its leader is CEO Hugh McColl, an ex-Marine who favors military metaphors. He’s the one who inspired the tongue-in-cheek name the Taj McColl for the company’s new office tower.

McColl leans back in a chair in the small conference room beside his modest-sized office. With his feet propped on a round table topped with Formica, he answers questions with the smile of a winner or, as he puts it, of someone who enjoys the absence of losing. He is fifty-seven years old, intense, with deep-set, heavy-lidded, penetrating eyes. He’s a Southerner who respects his South Carolina heritage and loves duck hunting, but he’s equally comfortable in his black BMW and Brooks Brothers shirts. He is a competitor savoring victory and pausing before the next challenge.

For the first time we are bigger than we think we are, McColl says, in a staccato voice. He never rambles, getting to the point quickly. He is smiling but serious. We are more important than we think we are, which is rare for us. Now we have to prove we can run what we have and we can run it better than anybody else.

His task is to manage the hottest banking franchise in the nation. NationsBank was born January i, 1992, in a merger between NCNB of Charlotte and C&S/Sovran of Atlanta and Norfolk. At the time of the union, NCNB was the tenth-largest bank in the country and C&S/ Sovran was twelfth.

Together they became a super regional, the leading bank in a market that reaches south from Maryland and the District of Columbia to Key West, Florida, and west to the edge of Texas at El Paso. We’ve got a huge task, McColl says. No one has tried to merge a multistate, mul-tibank holding company with another multistate, multibank holding company. There is no model.

More remarkable is that just twenty years ago, NCNB ranked only number two in North Carolina, trailing its nemesis, Wachovia Bank & Trust Co., which had been the commanding leader in North Carolina banking since the days of the Depression. And neither bank had more than $3 billion in assets.

In 1982 NCNB successfully led banking across state lines and established a foothold in deposit-rich Florida, fully two years ahead of any interstate competitor. And six years later the company doubled its size, to $65 billion, with the acquisition of First RepublicBank in Texas through a unique and controversial partnership with the Federal Deposit Insurance Corporation.

McColl is heir to a corporate culture that has put NationsBank on track to become a truly nationwide bank, a concept totally foreign to those who created NCNB in i960. He believes that it will be NationsBank and a handful of others from outside New York City that will command the banking industry in years to come. They will establish markets from coast to coast, while once-powerful New York banks recover from bad real estate loans, their reputations riddled by unpaid debts from less-developed countries.

McColl can trace this growth directly to NCNB’s first CEO, Addison Reese, and his successor, Tom Storrs, who instilled an aggressive, competitive spirit in the young talent that joined their new bank, challenging their employees to do battle with the Wachovia, based ninety miles north of Charlotte in Winston-Salem. Reese and Storrs shaped NCNB into a company that strived to be different from its competitors. The result was an organization that frequently broke from the ranks of banking tradition. McColl may have led the troops to Texas, but it was the spirit of Reese and Storrs that inspired NCNB to outwit Citicorp and Wells Fargo to claim the rich prize in Dallas.

A record of the company’s remarkable growth hangs in McColl’s private, windowless conference room on the twenty-third floor of the old forty-story tower on the southeast corner of Trade and Tryon streets. Covering two walls, mounted like hunting trophies, are thirty-five stock certificates representing the sixty-plus banks acquired during NCNB’s rise to prominence since i960. Accenting the green-and-white documents are political cartoons lampooning McColl and NCNB and an eyecatching photograph of a lighting bolt striking the company’s round office tower on the Tampa, Florida, waterfront, BLITZKREIG, screams the type just below it.

Next to the light switch is an outline drawing of the states of Florida and Texas with the keys to hotel rooms that served as McColl’s headquarters during NCNB invasions of those two states. A foot-long bronze lion reclining on a piece of marble is in the center of the conference table. Near the door an old cavalry sabre lies atop a credenza. Next to the sabre is a broken cornerstone with the name Republic Bank chiseled in it. Of these mementos of conquest, perhaps this is the most significant.

The Texas coup, which catapulted NCNB well past its regional rivals—including First Union, Wachovia, and Barnett in Florida—into the ranks of the largest of America’s banks, was a watershed in American banking, wrote banking analyst Carter Golembe in 1988. Ten or twenty years from now, Golembe said, and perhaps even earlier, those of us who are still around to comment on financial trends are likely to cite this move by NCNB as one of the most important signs that a fundamental change was taking place during the 1980s in the U.S. banking scene.

Golembe observed that his list of the nation’s twenty largest banks, when ranked by market capital, included only four based in New York. Philadelphia and Chicago banks no longer ranked in the top twenty. Six of the top twenty were from the southern states of Florida, Georgia, North Carolina, and Virginia. Indeed, Golembe’s prediction of change came true sooner than he or anyone else had anticipated. By the end of 1991, the nation’s financial institutions had experienced the most shocking disruptions since the bank failures of the Depression. During the four years ending with 1991, more than 750 banks failed, including a record 206 in 1988. The failures began in the farm states of the Midwest, then spread to the Southwest, and finally moved into New England.

The losers were gobbled up by a handful of institutions that quickly became regional powers, forming the nucleus of a group seemingly destined to become America’s first nationwide banks. The leaders in the banking industry were no longer concentrated in New York. Instead, the focus shifted to cities like Charlotte, headquarters to both NationsBank and First Union Corp. (which is approaching $65 billion in assets and a ranking in the nation’s top ten banks); Columbus, Ohio, home to Banc One (which has quadrupled its size to rival that of First Union); or west to San Francisco, home of Bank of America.

The success of these banks was possible, in part, because America had too many banks—12,000 institutions coast to coast. Banks weakened by competition from nonbank companies such as communications powers that issued credit cards, auto manufacturers that made car loans, and brokerage houses that offered interest-bearing checking accounts found themselves vulnerable to the strong banks. The consulting firm of McKinsey & Company predicted in 1991 that consolidation would continue among the nation’s 125 largest bank holding companies. In that scenario only 5 to 15 institutions would remain by the end of the decade, but the resulting mergers would save the industry $10 billion in annual operating expense.

The new breed of banks would be characterized by clearly defined cultures and innovative and aggressive corporate personalities, rather than the storied banking traditions in which one’s family name, social address, and schooling were of primary importance. The new leaders would be less concerned about convention and more concerned about competition.

Banc One, for example, led by John McCoy Jr., established boutique branches, located in shopping centers and featuring neon lights and partitioned service areas. Customers can arrange vacation travel, negotiate a home loan, open a checking account, or take advantage of a relocation service all in the same office. Branch executives hold sidewalk sales offering a quarter point off loans, while customers eat free hot dogs and hamburgers cooked on an outdoor grill by bank employees. And Banc One offices remain open on Saturday and Sunday afternoons.

Banc One focuses on individual consumers and small- and medium-sized businesses; 80 percent of its commercial loans go to companies with sales of $50 million or less. Since 1984, the bank has quadrupled in size, partly because of its entry into the Texas market, where it purchased MCorp with an FDIC-assisted plan pioneered by NCNB.

BankAmerica, meanwhile, pared down its global ambitions and is following a similar strategy. The San Francisco-based bank cut its foreign operations almost in half and decided that, rather than compete with money-center banks as it had for eight decades, it would concentrate on becoming the premier consumer bank in the western United States. Founded in 1904, BankAmerica barely survived disastrous losses on loans to Brazil and other less-developed countries, watching its stock fall from $32 a share in 1980 to $7,625 on October 21, 1987, ending that year with losses of $955 million.

The bank fended off a takeover in 1986 from First Interstate Corp. of Los Angeles, then effected a $4 billion merger with Security Pacific Corp. in August 1991, shortly after NCNB and C&S/Sovran announced their merger. The resulting merger pushed assets to $190 billion and extended business to 2,400 branches in ten states, ranging from California to Colorado.

BankAmerica is building a franchise in the West equal to the one under the NationsBank logo in the East. The two big banks together cover the Sunbelt states, with BankAmerica coming from the west through the south and NCNB expanding from the east. A merger of the two into one nationwide franchise at some point in the future is not outside the realm of possibility in many analyses.

If you believe that history is prologue, then you know that we are going to buy a company of $100 billion soon, McColl says. Not tomorrow, not next week, not necessarily next year. But if you take a company that has multiplied by more than ten times in a period of eight years it is conceivable to think we will double the company inside of five. It is inconceivable to think we wouldn’t.

McColl is not shy about challenging the traditional power blocs to ensure the expansion of the NationsBank franchise. Our pattern puts us more and more at odds with most banks. It’s not clear that we won’t break away from the American Bankers Association, he says, smarting from the ABA’s opposition in 1991 to congressional reforms allowing nationwide banking. I’m not sure it is worth our money to fund organizations that fight us. Like Citibank, we are out in a different ball game.

In the late 1970s, NCNB was not seen as the most likely contender to reshape the nation’s banking industry. Most analysts failed to mention NCNB as a prime candidate for leaping over state lines, and one touted Wachovia as the most likely expansion-minded bank in the South. Like many regional banks that had captured the attention of Wall Street with their dynamic growth in earnings before the recession of 1974—75, NCNB was still picking up the pieces from its bout with the battered economy. But NCNB’s CEO, Tom Storrs, McColl’s predecessor, was looking for ways for the bank to survive and compete.

If Storrs had followed the conventional line of thinking about banking, NCNB’s future would have been limited by the finite number of markets and the modest growth of consumer deposits within North Carolina’s borders. But Storrs was a man who had pushed for expansion into international finance in the early 1970s, before most regional banks saw the opportunities abroad. His vision was anything but conventional. In 1980, he organized a task force to find ways for NCNB to expand its business across state lines.

Storrs didn’t know when he created his task force that one of the bank’s attorneys, Paul Polking, would find a gap in the Florida legislation prohibiting out-of-state ownership of banks that provided an opportunity just right for NCNB and no one else. In June 1981—literally overnight—bank officials hung the NCNB sign on a small, country bank in Lake City that they bought before they ever set foot in the small town in north Florida.

The move stunned and then angered Florida bankers. Within six months, however, NCNB’s beachhead was secured when the purchase was approved by the Federal Reserve Board. The board agreed that a 1972 Florida law left NCNB the right to expand into other kinds of banking because it already owned a nondeposit trust company in Florida.

Between mid-1982 and the end of 1988, NCNB’s Florida banking assets increased from $21 million to more than $7.4 billion as the bank acquired one bank after another. While bankers in Florida and the remainder of the Southeast may not have liked NCNB’s incursion, the bold move across state lines represented an inescapable confirmation of Storrs’s prediction. State barriers to out-of-state ownership of banks disappeared in June 1985, when the United States Supreme Court ruled that states could make interstate bank compacts.

McColl, Storrs’s chief of staff in the Florida expansion, became his successor in 1983 and guided the bank to the next plateau. His style contrasts sharply with that of most members of the banking fraternity, and some observers and competitors have misinterpreted McColl’s penchant for talking business in military terms as a rattling of sabers or macho blustering. It is more fundamental than that. He calls the Marine Corps his graduate school of business.

I believe we will accomplish more if people feel pride in themselves and the institution, and I learned that in the Marine Corps, McColl says. You can take the ninety-seven-pound weakling and you put him in that green uniform and pretty soon he thinks he can kick in doors by himself, but the team will see that he doesn’t get killed. That really is part of my philosophy of management: Give your troops victory. Troops love victory. Pay them well. Give them the room to run. Be tough about standards, and be tough about what you expect.

Rugged and fit at just under five feet seven inches tall, McColl is the ultimate competitor—at banking, sailing, or tennis. He even competes against himself, working large, monochromatic jigsaw puzzles by the hour, a bottle of beer in his hand, concentration evident in his face. He has been told all his life not to settle for second best; he has been expected to be the winner, the leader. A significant childhood memory is the story The Little Engine That Could, which his mother read to him. The slogan stitched on a sofa pillow in his office warns, The trouble with being a good sport is you have to lose to prove it.

The vitality of the place keeps McColl’s top executives sharp and interested, leaving them little time to wander off to the competition. His nervy manner alerts his competitors that he means business, that they will have to work hard to defeat him and his company.

McColl is highly charged; he usually requires five or fewer hours of sleep a night. He devours information, believing that a chief executive must always be collecting data. The most dangerous thing about this job is that you are never told the truth, he said once after he became CEO. The truth never makes it to the top. It gets filtered. The way to avoid letting the truth get filtered is to go down in the ranks and have the reputation that you are down there checking on things and that you may know more about their area of responsibility than they do.

McColl isn’t a sedentary boss. He roams the territory, often in his shirtsleeves. Executives are not surprised when he pops into a conference room just to see what’s going on. Once, when he found a door locked, he hunted down a key and let himself in while a meeting was under way.

He asks questions of employees at all levels, something he calls eclectic interference, even when he knows the answers. When he doesn’t know, he will check later to verify that what he was told was correct. He expects nothing less of those who work for him. Shortly after NCNB purchased a bank in Florida, McColl and other NCNB executives were reviewing the real estate involved in the sale with the officers of the acquired bank. McColl asked the comptroller how many square feet were in the bank’s downtown office building. The man didn’t know, which McColl found curious since the comptroller was responsible for negotiating leases. The next day, he asked the same man the same question. Again, he was told, I don’t know. Before long, the comptroller left the company. He wasn’t smart enough to work for us, McColl said later.

Such incidents spawned complaints in Florida that NCNB was ruthless, uncaring, and coldly methodical in its dismissals of dozens of executives and others in banks that it acquired. One former top executive there summarized NCNB’s corporate culture, often personified by McColl, as that of a snotty-nosed kid aching for a fight. McColl was profiled by Fortune magazine in 1989 as one of America’s seven toughest bosses. According to associates and friends, the honor was unwarranted. The article triggered a flood of more than four hundred Valentines from NCNB employees shortly after it appeared in February.

McColl may seem to some to be a stormy Marine, but he is intensely loyal to his friends and uncommonly supportive of members of his team. He mixes with subordinates whenever possible. He joins bull sessions of new recruits and looks for other opportunities to get to know the people who work for him. For example, the bank’s fleet of planes is open to any employee who can justify the use. As a result, junior officers may find themselves seated next to the CEO, who is as likely to strike up a conversation about a bank project as he is to ask about their family or a weekend golf game. This familiarity, and McColl’s ability to recall such encounters, breeds loyalty that any CEO would envy.

Executives and department heads who have failed to share McColl’s respect for individuals and who have trifled with subordinates have felt his wrath. Once, on a visit to the bank’s bond trading department, McColl asked why an employee was sitting on a bench instead of in her own chair. The chair was on order, the woman’s supervisor said. How long had it been on order? McColl asked. Two or three months, he was told. McColl reached for a nearby phone and called the department head responsible for office furnishings. He listened patiently to an explanation and then replied, Yes, yes, I understand. But I’ll tell you what—if you can’t get her a chair, if we don’t have one available within the next twenty to twenty-five minutes, then you can bring her your chair.

Under McColl’s leadership, NCNB established flexible hours for working parents and a pre-tax child-care-expense reimbursement fund. Maternity leave was extended from four to six months, and the concept was expanded to include time off for fathers as well. These policies attracted the attention of the Wall Street Journal, which in its centennial edition in 1989 selected NCNB as one of twelve companies in the world to watch in the future. Fortune also chose McColl as one of the year’s twenty-five most fascinating business people—the only one in banking—in its January 1989 issue.

A fifth-generation banker, McColl is nevertheless a maverick in an industry dominated by clubbishness. By his own admission, he is not likely to be nominated as president of the prestigious Association of Reserve City Bankers, an honor won by both his predecessors.

Hugh McColl was raised in a family of bankers and merchants in Bennettsville, South Carolina, a town of 10,000 about ninety miles southeast of Charlotte. The county seat of Marlboro County, Bennettsville is surrounded by the remains of Old South plantations and still depends heavily on the area’s agrarian economy. It is Scotch Presbyterian country, where tradition and family mean everything. McColl is proud of his heritage, even though an Edinburgh limousine driver once told him that in Scotland the McColls were a damned bunch of sheep thieves.

McColl’s father, Big Hugh, ran the Bank of Marlboro and kept it open through the Depression. When the family finally sold it, he turned to other McColl enterprises. I encouraged all my boys to go into banking, the elder McColl said. I was a banker. My father was a banker, and my grandfather was a banker. His two other sons also went into banking, Kenneth with South Carolina National Bank in Greenville, South Carolina, and James with Citizens & Southern National Bank in Columbia, South Carolina. His only daughter, Frances, died in 1990.

McColl credits his mother for his competitive nature. She was an artist who studied in New York City before returning to Bennettsville, where she kept a studio behind the McColl home near the center of town. She also was a musician and a daredevil who once dove off a trestle bridge into a river and flaunted the rules against outrageous behavior at Winthrop College by taking an airplane ride while she was a senior. The stunt cost her a place in line with the graduating seniors.

She didn’t allow a television set in the McColl home, instead encouraging her children to read. Completion of Beau Geste a romantic book about brotherly love, was a rite of passage for the three McColl boys. I was raised on sayings like ‘Come home with your shield, or on it.’ That was Mother. She raised us on Siegfried, Beowulf, and heroic figures.

During high school, where he lettered in four sports and was class president, McColl kept the books for the family business, a cotton-ginning operation. The elder McColl demanded accuracy, once causing young Hugh to miss a weekend at the beach with his friends while he stayed home to find a penny lost in the balance sheet. He had the books balanced by Sunday night.

At the University of North Carolina at Chapel Hill, his father’s alma mater, McColl was a mediocre student in the business school. You could put all I learned about banking and finance in an ashtray, McColl recalled. He spent a lot of time partying and served as president of his fraternity, Beta Theta Pi, where he earned the nickname of Motor-mouth McColl. He lettered in lacrosse and once bit through his tongue after a particularly vicious hit.

McColl entered the Marine Corps after graduating in 1957. He joked that he was on the rebound from a love affair and joining the Marines was the closest he could come to joining the French Foreign Legion, which he had read about in Beau Geste. On more careful reflection, he said he was impressed with the coach of the lacrosse team at Chapel Hill, a Marine captain in the Naval Reserve Officers’ Training Corps.

McColl got his commission, and his unit shipped out for Lebanon in 1958. His exposure to one of the world’s hot zones was uneventful. Throughout his tour in Lebanon, he remained on a troop ship and played no-limit poker games, winning the equivalent of three years’ pay. Once, however, during a training exercise after the Lebanon crisis, he jumped from a helicopter into the sea, and the scuba air tank strapped to his back struck the back of his head, cutting a large gash and knocking him unconscious. A sergeant saw a trail of McColl’s blood in the water and followed it down to pull his unconscious platoon leader to the surface, saving his life.

I grew up some in the Marines, McColl said. We had to get up early. We had to work for people we didn’t particularly like. We had to be there on time. You know, it is a terrific school of management. I remember walking down the road, in the rain and mud. It was miserable. Then, sort of like a light went on. They’ve got me, I thought. I actually think I’m supposed to be here. I saw nothing wrong with walking down this road, carrying a weapon, freezing to death. They had won. They were good at it.

He might have stayed in the Marines, McColl says, but he didn’t like having to serve time in grade before he could be promoted. McColl still turns to the lessons from his old officer’s manual. You learn a lot about letting the troops eat first, about not asking someone to do something you wouldn’t do. The standard has to be set by the officers. Those are good rules in a company. You’ve got to look after your troops. They’ll look after you.

In 1988, less than five years after McColl assumed the NCNB chairmanship, he felt his troops getting restless. They had been through some tough battles in Florida, had pushed interstate banking onto the industry’s agenda nationally, and then had taken advantage of the merger opportunities that followed, buying Bankers Trust of South Carolina and picking up smaller operations in Maryland and Georgia. Big changes were afoot as regional competitors like First Union and Wachovia in North Carolina, Citizens & Southern in Atlanta, Sovran in Virginia, and Barnett and Southeast in Florida continued to grow in importance and size, feeding on the prosperity of the Sunbelt economy.

Change was also taking place in Washington, where a former businessman and business school dean, L. William Seidman, took over the chairmanship of the Federal Deposit Insurance Corporation. Just three years into the job, Seidman was faced with the possibility of the agency’s first operating loss in fifty years. Two of the biggest banks in Texas—the $12 billion First City Bancorp of Houston and the $32.5 billion First RepublicBank of Dallas—were on the FDIC’s critical list. While McColl and his peers in the Southeast were flush from expansion, major cracks were appearing in other parts of the nation’s banking system.

Still recovering from the FDIC takeover of Continental Illinois Bank in Chicago, the biggest bailout of American business ever, Seidman faced a year that would record more bank failures than any in history. In early April 1988, he agreed to a conference with Hugh McColl, whom he had never met. Together they would change the direction of banking in the United States.

Chapter 2 An Unlikely Candidate

When L. William Seidman assumed the chairmanship of the Federal Deposit Insurance Corporation in 1985, he wasn’t aware of the challenges that lay ahead. In fact, he wasn’t sure where in Washington the agency’s offices were located. Upon his arrival on the scene, he found the agency with its smallest staff of field bank examiners ever, at a time when banks teetered on the brink of the greatest period of calamitous change since the 1930s.

Organized in 1933 to insure the money of individual depositors, the FDIC was an independent government corporation, created by Congress to reassure bank customers that their money was safe. At the time, the nation was in the grip of the Depression; thousands of banks had not reopened after President Franklin Roosevelt’s Bank Holiday in 1933. The FDIC’s stamp of approval on a bank meant that customers’ deposits were guaranteed, at that time up to $2,500. To pay its own expenses and to establish the insurance fund, the FDIC assessed member banks a modest fee.

Over the years since then banks had failed from time to time, but the resources of the FDIC were always more than sufficient to cover depositors’ claims. In time, the agency had even reduced the amount that banks paid in insurance premiums. The operation became relatively routine. When a bank was in trouble, the agency had two basic choices: Close it and pay off depositors from the insurance fund, or take it over and sell the assets to some healthier institution. For the most part, the agency’s work was little noticed outside the banking community.

By the time Seidman was installed as chairman, however, the FDIC had stepped beyond its passive role of simply insuring deposits. And the risks were greater. Now the agency insured deposits up to $100,000, and during the 1970s it had begun extending loans to troubled banks and using other extraordinary devices to keep banks from failing.

Business, politics, and banking, either individually or collectively, had been part of Seidman’s professional life for years. A Republican from Michigan and an accountant whose family firm was one of the largest in the nation, Seidman had his first look at the inside of government in 1974 when newly appointed vice president Gerald Ford, another son of Grand Rapids, asked him to help organize his administrative staff. Seidman had been called to Washington for a minor appointment in the Department of Housing and Urban Development, but the events leading to the resignation of Richard Nixon and Ford’s elevation to the presidency soon put him in the White House as one of seven assistants with direct access to the Oval Office.

It was a heady time, and Seidman enjoyed the work and the perquisites of the job as domestic economic adviser to the president. He and his wife, Sally, reluctantly left Washington when Jimmy Carter’s Democrats gained control in two years. Nine years later, in 1985, he got a call from an old Washington chum who asked how he would feel about becoming chairman of the FDIC. By then, Seidman had served