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So What Do We Want of Banks?
Graham Sinclair | Wednesday 15th July 2009
 So what do we want of banks? A fair question and more sharply pointed in the post-2008 financial meltdown. The skeletons of some banks that fell over are still roaming halls and corridors in major cities, and probably still rumbling through your life too if you're in a major financial center like Singapore, New York or London. You may still find some Lehman Bros goodies on Ebay [Vineyard Vines silk ties going at USD 32.95 right now!] and the bankruptcy administrators did find USD 11 bn! The Lloyds/HBOS/Insight Investment/SWIP saga drags along in the City of London, while the boxing inside and outside the Bank of America/Merrill Lynch merger will be a great spectator sport for a while yet [can you believe they messed with THE iconic bull logo?] as WSJ [Old Merrill Quickly Disappears Inside BOA] and The Atlantic covered. Tuesday's profits announcement from Wall St did not help the mood either [Bloomberg: Goldman Sachs Posts Record Results, Beating Estimates]. Things are a little prickly now that Goldman Sachs is piling on the profits, profits which some argue are from the crisis it helped create [see Businesssweek, WashingtonPost, Marketplace, Telegraph, WSJ], although investment types at SeekingAlpha like the good news. And the bump in pay packages is going to attract whining louder than Lions supporters on the 2009 Springbok tour. The question was posed by moderator Tom Cummings facilitating one of the breakout conversations at the Tallberg Forum 2009 in Sweden 24-28 June 2009. My thinking heads to the large end [making their investment or lending decision in a way that directly integrates ESG factors in investment decisions] and the small end [offering ramps for the unbanked to enter the financial system].At the financial sector "reality check" seminar at the Tallberg Forum on Fri 26 June the question was debated - so what do we want of banks? - and I liked the first reply by the discussant (that role title always makes me smile). The discussant prefaced comments by admitting he had been a sell-side analyst covering the financial services sector in his past. Chatham House rules make me unable to attribute comments nor positions, but we had a fair crop of current and past financial services thinkers, workers and leaders, including fromTriodos, HSBC and ABN Amro. The frank comment from the discussant was not "more funding to eco-friendly ventures" nor "lower fees for unbanked communities' nor "low-income housing loans" or such. No, it was short and sharp, and indisputable: "I want my money back!" Can you argue with that from a bank? Pretty simple, but pretty fundamental. We want a bank to be solid - reflecting the huge architectural homes they had back in the 19th century with columns and vaults and steps - and to know the cash will be there when we need, give or take the odd Italian Job [did 1969 Michael Caine make polonecks cool again?]. Tom managed to guide the conversation long enough to unlock other core aspirations for what we want from banks, namely "meet needs at reasonable price" and "values that match my values" [see video of Tom looking all Harrison Ford does Al Gore in Greenland]. But that first reason for what we want from banks does stick out: core to strategy. The comment is also a reminder about the context: the for-profit lender bank has a role to play, and fundamentally it is about keeping its client's money safe until called for. This is some 9 years after the paper in Fall 1998 in defence of the need for commercial banks from a University of Chicago academic, Prof. Rajan, at the National Bureau for Economic Research [NBER] in the US. Peter Blom, of legendary Dutch banking group Tridodos has reasons to smile, and not just for having a shop that won the 2009 FT Sustainable Banker award in LDN (see post Geldof Lectures Bankers) in a boost to the UK operation. [Sidenote: the FT failed to cover the story of the winners in any of their editions, or did I miss something? And the conference website is not really world class, no?]. After the recent meldown, Triodos was swarmed by depositor clients seeking safe haven for their money. Triodos describe how they deploy your capital. In a moment, in a disaster, the different and transparent and understandable business model over the history of Triodos had been building for years suddenly proved its worth. Apart from the Triodos sustainability pitch, depositors were delighted to just find a bank they could trust. At its peek, Triodos were collecting 300 clients per day. That is something to grow a business on, although still yet a niche in The Netherlands, UK, Belgium, Spain and Germany [not Sweden?] where it has operating licences. The Tallberg conversation spoke of banks heading back to core business, addressing responsibility, transparency and speculation issues up front. What shall we do with the banks [especially now we own some, right?]. Some delegates spoke of wanting to have banks being simpler, to make sure savings are really safe. Regulation to help make this happen is a given. The super-regulation across jurisdictions is still being hammered out, and no doubt too much regulation will be with us before things settle back. But do enjoy reading the paper "Why Do We Regulate Banks" from the right-wing American Enterprise Institute from 2005 [wonder what Peter is writing now?]. Or the 1991 Time article "Do We Really Need Banks Anymore?" which predates the 1990s rush to unpack the wise but outdated 1930s banking legislation in the US. What a wonderfully prescient push in the wrong direction. The impact of "fear and greed" was still apparent at Tallberg in the edgy comments about bankers (but some of my best friends...!). Not every bank is a Triodos. What do we want of banks? Bottom line for banks, whether at the windy end of downtown Manahattan at 85 Broad St or on your local neighbourhood block: we want our money back, on any given day. Better than that, get that money multiplying into investment and lending that understands the planet has boundaries, that directly integrates ESG factors in investment decisions. |
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Clemens Kownatzki 24 August 2009 Fascinating commentary! I'm intrigued by the highly praised Triodos Bank and it's sustainability pitch. However, too many institutions have been jumping on the SRI and sustainability bandwagon recently. It's hip to be socially responsible et al; while Triodos deserves a more in-depth review, after just a few minutes of reviewing their site, I have some concerns with the Triodos Values Equitiy Fund just as an example. I don't know some of the companies they invest in, but exactly what do the firms below have to do with good sustainability characteristics and a a solid social and environmental performance? Curious to hear your insights on this. Best wishes!
3i Group Adecco adidas British Land BT Group Cable & Wireless Canon Carrefour CME Group Deutsche Post Diageo DnB Nor EBay Henkel Hennes & Mauritz ING Group Man Group Nokia Philips Electronics Potash Rockwell Automation Sharp State Street Vodafone Walt Disney |
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Bruce Cahan 20 August 2009 Graham, this series of blog posts is fascinating. Keep them coming!
The FT's Sustainable Banker Awards to Peter Blom at Triodos and Willy Foote at Root Capital highlight people reshaping the financial services landscape. As the means to see ESG impacts expand, the impact accountancy's use must be expanded by banks, beyond the governance of moderating intemperate bonuses, to shift the impacts of every finance service offered. I've called this shift in paradigm "high transparency banking," as described in this article in the San Francisco Federal Reserve Bank journal on community finance: http://jm.ly/9S8My1 . Parallel crises of banking, climate, healthcare and poverty set the stage of reconnecting meaning to the money banks create. And those reconnections can accelerate when all of us see (and patronize banks helping us see) the reweaving our daily financial lives enable. |
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Graham Sinclair 16 July 2009 yip, just a tiny market. i'm hoping the flatline growth elsewhere will attract more attention to internal under-banked in europe and america, and in africa, latam and aisa. and with each passing day, it starts to look like business-as-usual. hope not.
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Elaine Cohen 15 July 2009 hi, fascinating analysis, thanks. Social banking is still a small % of the banking market, as far as i know, despite its growth in recent months. But even if we accept that it will never be mainstream (regretfully) i think we want more from banks than our money back. This is the baseline. We must have banks that work ESG into investment desisions. This is baseline plus. But i think we need banks to go further - and help drive a higher level of equitable wealth distribution, financial inclusion and financial literacy. Through incentivization, rather than negative outscreening, banks have to power to encourage real change. It would be a shame if we let the financial crisis provide an excuse for banks to go back to simply providing a service around money. The opportunity is for the banking sector to get dead serious about driving behaviour change by consumers, investors and industrialists .
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