Balancing Banking’s Development
The Role of Rules
Efforts have been made to control the banking system better with more demanding rules. These regulations are important and part of the daily life of all banks including Triodos Bank.
They have the potential to help to create the conditions for a more resilient banking industry. This is particularly true if regulations can be reframed in the context of accountability and transparency – explaining how banks make their profits and go about their business – and combined with higher levels of personal responsibility. These are all characteristics, notably, of how Triodos Bank approaches its work.
However, a better regulatory framework is both crucial and not enough on its own. Well-publicised banking scandals in 2013 have increased the urgency for better regulation but it is only one, albeit a very important element, in building a better banking system.
Real change – the kind that involves a more profound shift from short to long-term thinking – requires a different, more responsible culture in the banking sector itself.
From Bigger to Better Banks
In recent years, for many in business and policy-making, bigger has meant better. This trend has been bolstered by a number of mergers and acquisitions following the financial crisis. As a result many structures, including banks, have grown to become very large indeed. This necessarily means less diversity as smaller players are bought up or squeezed out. As the Global Alliance for Banking on Values, a network of leading independent sustainable banks that Triodos co-founded in 2009, argues we believe greater diversity is essential to a healthier banking system.
This diversity should be bolstered by a more transparent and direct relationship with the real economy that’s consciously linked to people’s needs. The kind of approach that Triodos Bank, and other banks like it, take. This relationship should focus on the businesses and entrepreneurs providing services, or manufacturing and selling products that address society’s needs. Not the transactions that take place in the financial economy, that make money from money and bypass wider society.
Individuals also increasingly demand personal attention; providing it can be challenging for a monoculture of big banks where standardization and economies of scale are the norm. In banks, where financial decisions can have a profound impact on a person’s quality of life, relationships, and the conversations that spring from them, are crucial. Technology has a key role to play in speeding up and tailoring services but it cannot automate the kind of dialogue that a banker and a borrower, investor or saver often need to have to help fulfill their needs and dreams.
The Playing Field
Governments, in partnership with regulators and the banks themselves, play a crucial role in determining the playing field within which the banks, regardless of their size, can operate. This is extremely important because when the supply of credit dries up, society suffers – so creating the conditions for a successful and diverse banking industry matters.
Triodos Bank has experienced the influence of government in practice throughout 2013. The decisions governments have made about where to support sectors, and where to apply austerity, has affected many of the sustainable sectors that Triodos Bank operates in, from maintaining tax incentives for green investment in The Netherlands, to removing incentives for the renewable energy industry in Spain, and with anticipated changes to incentives in Germany and for the hydro-energy industry in the UK.
Triodos Bank and the New Economy
These wider issues are directly relevant to the healthy development of Triodos Bank too.
We have an opportunity to further increase our impact by focusing more on increasing the number of our borrowers, rather than the volume of our loans. This will ensure we concentrate less of our lending in individual sectors. In practice that means diversifying our loan portfolio both in sectors and geographically.
Instead, Triodos Bank wants to be known as the bank that serves a diverse range of sustainable sectors that improve people’s quality of life. This reflects our roots, and current activity, which is equally grounded in social, cultural and environmental areas. In addition, we want to increasingly focus on financing businesses who want to transform to focus on sustainability issues, not only those that are already meeting the highest environmental and social standards.
And we want to continue to finance sustainable front-runners in their sectors. Often these businesses are ‘horizontally’ organized, characterized by connected self-employed people running relatively small enterprises. Typically, they are technologically savvy, networked, willing to share knowledge and hungry to acquire it. This willingness to share offers an important lesson for a more progressive banking industry that could collaborate more closely. We think this emerging phenomenon is important, and we want to be closer to these businesses in the future.
This new breed of entrepreneurs and enterprises are helping to build a new, more sustainable economy which is growing and engaging all aspects of life. Traditional care for the elderly, for instance, is changing as organisations try to combine care and work opportunities for older people who want to benefit from both. New networks for electricity distribution that can absorb decentralized systems of energy generation are all contributing to this emerging pattern of change. And banks have to adapt and change in the same way if they are to finance these developing industries.