To understand where the financial industry should go next, it’s worth addressing when and why things became so different.
The early 1980s witnessed profound change. The predominant thinking that business is business and banking is banking – the paradigm of the years before – transformed to a different kind of economic thinking championed by the new financial liberalism of the UK and United States, and echoed by much of mainland Europe.
Banks became businesses and started to grow. As they did, they started to trade on their own account, producing greater profits from the financial markets than from traditional relationship banking, and embracing a short-term focus on maximising profit. The link with the real economy and retail and business customers started to unravel, to the extent that some bankers truly believed that innovative financial markets, in themselves, could produce real value.
At the same time, more businesses started to behave like banks. Some large manufacturing businesses in America, for example, decided to pursue leasing financial services because that was more profitable than making their core goods. This pattern proved popular, but meant more and more banks were increasingly separated from the real economy.
Successful bankers were increasingly mathematicians, and successful businesses adopted models which made more money in capital markets than from selling products and services.
This thinking, that turns almost everything into a marketable product, is one of the root causes of our current troubles. It is the paradigm that’s taught at many of our most influential business schools; and it is deeply ingrained in our financial system.
This neo-liberal thinking has to change. If it doesn’t, we will not get the bankers we need to build a more equitable, environmentally responsible and prosperous future.
To break free of this cycle, we must re-think. We should realise and embrace the fact that banks have a vital, positive role to play in society. Banks should serve a real and sustainable economy, finding out what the needs are of the people they serve rather than maximising financial and shareholder returns.
Triodos Bank, and other like-minded financial institutions are at the heart of efforts to rethink the system in this way. Not just by what we do every day, financing sustainable entrepreneurs and enterprises working in the real economy, but also by stimulating an open debate about the role of the financial sector.
The Sustainable Finance Lab (www.sustainablefinancelab.nl) a Dutch ‘think and do’ tank of leading economists, is one example. Co-founded by Triodos Bank during the year it identifies grounded ways to change the financial system for the better. At the end of 2011 the group hosted five debates with politicians, bankers and the public, resulting in nine recommendations. We intend to grow and develop this concept internationally.
Triodos Bank has also co-founded, and Chairs, the Global Alliance for Banking on Values. A network of the world’s front-running values-based banks – from a microfinance bank in Peru to a groundbreaking credit union in Canada – it aims to increase the impact of, and raise awareness about, sustainable banking.
We intend to help grow to 30 members by 2015 from 14 in 2011; explore a collective financial vehicle to meet the need for equity in this fast growing banking sector; develop impact measures to better demonstrate the results of the sustainable banking industry’s work; and build an international exchange programme for talented co-workers who will be part of the next generation of sustainable bankers.
Other positive developments in 2011 included co-founding Social Enterprise Finance Australia, a new initiative to finance Australian social enterprise.