The words “banking” and “scandal” have in recent years become synonymous; a pairing of terms that provokes skepticism about the possibility of any real change in the financial services system.
And yet ensuring that our banking system is working well, and for the right reasons, is critical. Where we allocate capital today—who we decide to lend to and who we don’t—matters, because it is a significant determinant of our society’s future health.
(NOTE: Learn more about the pioneering work of Vancity at the Sustainability Applied conference, October 1-2 in Mississauga Ontario.)
The public is calling for changes in the financial system in response to the excesses and failures of recent years and increasingly urgent social and environmental challenges. People are hungry to hear about ideas that move us beyond the banking meltdown and economic crisis to a banking system that values positive impact, integrity, accountability and transparency.
The opportunity for change is to create a more responsive way to bank, one that puts the needs of people and their communities first, and then places the tools of banking in service of their economic, social and environmental development.
There are bankers (yes, bankers) who are at the forefront of this positive change, leading a worldwide movement to find global solutions to social and environmental problems and promoting a viable alternative to the current financial system that is fair, accountable and transparent.
And they are proving that not only is sustainable banking the right thing for people and their communities, it’s a way to ensure strong and profitable banks. The two are not mutually exclusive.
How do we know?
A study by the Global Alliance for Banking on Values, an independent network of the world’s leading sustainable banks, proves the point. The Global Alliance studied the 10-year financial performance from 2002-2011 of 28 of the Global Systemically Important Financial Institutions (GSIFIs), the so-called ‘too-big-to-fail banks’, and 22 sustainable banks.
Across almost all the measures that matter in banking, the sustainable banks outperformed their peers, with a greater proportion of exposure to customers in both deposits and loans, relatively high and better quality capital, better returns on assets and equal returns on equity with lower volatility of returns, and significantly higher levels of growth.
Importantly, the results showed that the sustainable banks allocated almost twice as much of their balance sheet to lending to the real economy than the GSIFIs, which meant more capital in the hands of the entrepreneurs and businesses interested in producing solutions to complex global problems that matter to our social, environmental and economic health.
The study concluded overall that sustainable banks were resilient, supported the real economy, and provided stable returns. The GSIFIs lent less, attracted less deposits, and had a weaker capital base than their sustainable banking peers.
Sustainable bankers believe that we must improve the quality of life for everyone on the planet, recognizing that we are economically interdependent and responsible to future generations. We require a direct relationship with our clients, customers or members to ensure a sound understanding of the economic activities in our communities and a realistic assessment of the risks involved.
We would like to see politicians and regulators use the sustainable banking model as a reference point for making the banking system more resilient and fair, transparent and accountable.
At Vancity, our vision says you can only truly prosper as an individual if you are connected to a vibrant, healthy community that is sustainable for the long term. Our financial cooperative operates on a model of banking designed to connect directly with our members so we can innovate in response to their needs.
We need more people using the banking system, not fewer. Apart from regaining the trust of the public in the values and ethics of banking, we also need to reach out to those who are marginalized or excluded from the system altogether, taking down the barriers whether they are caused by a lack of accessibility or a low level of literacy.
So—a banking system that is focused on the needs of people, now and in the future, is inclusive, puts capital in the hands of those who are creating solutions to complex social, environmental and economic problems, and is a robust business model for growth to boot.
Why wouldn’t everyone want to bank this way?
This article was originally published in the Vancouver Sun
Tamara Vrooman is President & CEO of Vancity, Canada’s largest community credit union, based in Vancouver, and a member of the Steering Committee of the Global Alliance for Banking on Values.