The heart of banking
The combination of activists occupying streets across the globe, and the pull of an ever worsening economy, is brewing up the perfect storm for banking. With liquidity pricing at its highest since the fall of Lehman Brothers, it could well get a lot worse. But, despite this, the fundamental role of banks in society still isn’t receiving the attention it deserves.
Perhaps as a society we’ve become so blind to banking’s potential for good that, while we express frustration at the unacceptable behaviour of banks, we can’t actually imagine them doing anything else. But it doesn’t have to be this way. The role of banks is no longer an academic exercise, but a timely and fundamental question.
Picture society as a human body. If money is its lifeblood, then banks should act as society’s heart, pumping it around as needed. If the heart is healthy, the body will be able to access the resources it needs to remain healthy. But without a conscious approach to the flow of money, the malaise in the society will feed back to the banks and infect them. The financial crisis has proven that, when the banks fail, the whole of society suffers. And, after bringing the economy to its knees, it’s morally and practically right that banks take an active role in helping to build it back up again.
So what should the future of banking look like? We believe that banks should act as enablers of positive change, focusing more on the real economy and supporting its future, rather than short-term shareholder returns. Research commissioned by Triodos shows that five in six people believe their bank should play a role in helping society. Two thirds (64%) wanted to see more investment in communities. Just 3% of savers feel banks are transparent about what happens to their money. We can guess why. At present, only a fraction of the money lent and invested by the main banks is used to bring about positive change. Clearly the banks’ customers do not think this is good enough. It’s a call to action for policy-makers, shareholders, and bank executives: they have to ensure the banking sector gives more back to society, rather than just taking.
A compelling alternative would see a shift towards smaller banks, and more of them. This would deliver benefits to society while limiting the financial sector’s potential to harm it. These smaller banks could operate on a human scale. They could specialise, and pass expertise onto their customers. The more focused they can remain on the direct impacts of the finance they provide, the more emphasis they can place on its environmental and social advantages.
The Global Alliance for Banking on Values is an independent network of banks which aims to use finance to deliver sustainable development for people, communities and the environment. It demonstrates how a new model made up of smaller, interconnected banks can work. While they serve very different communities, from urban San Francisco to rural Mongolia, they learn from each other, sharing ideas on long-term sustainable thinking, new forms of ownership and economic cooperation.
Crucially, scaled-down banks would be small enough to fail. One of the cruellest ironies of the financial crisis has been that banks – which often act as judge, jury and executioner for struggling businesses – have not been forced to play by their own rules. Arguably, smaller banks would not benefit from the economies of scale enjoyed by today’s banking behemoths. But, while it’s questionable whether these savings are passed on to the consumer, there’s no doubt what the cost of their failure has been.
The banking industry owes an awful lot to society. A little open heart surgery is exactly what it needs to start making repayments.
Bevis Watts is Head of Business Banking, Triodos Bank.
This article originally appeared in Green Futures, the leading magazine on environmental solutions and sustainable futures published by Forum for the Future.