Some ideas for savings and retail banks by Ole Morten Geving, former managing director of the Norwegian Savings Banks Association.
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BRUSSELS, 18 June 2020
We face challenging times – again. The coronavirus outbreak presents a major stress-test both for our societies and our everyday life. A health crisis with unprecedented consequences on economies, societies, businesses and households, uncertainty reigns. We cannot foresee what will come, but we will for sure have to find our path through the Covid-19 aftermath.
We face also a time of radical uncertainty. Covid-19 adds to other trends hitting us, creating a toxic mix of pandemic, trade conflicts, geopolitical tension, and a deepening mistrust among world leaders – playing hard instead of reasoning, political extremism on the rise and lately, public unrest.
This perfect storm breaks seven decades of continuous development. The world community, and the economy along with it, gradually improved during this period its way and capacity to handle crises due to lessons learned and applied since the end of WWII. But we now experience something truly disturbing. But regardless, the world will go on. Economies will adapt, and a new normality will occur. But how will that 'new normal' be?
Mind the gap
Despite the uncertainty placed before us, what we do know is that those hardest hit from these crises – ordinary people, families, businesses and societies – must face a gauntlet of obstacles on an everyday basis. And we know too well that many of those hardest hit still struggle with the after-effects of the financial crisis from 10 years ago.
This leads me to my greatest concern for our near future: The gaps – gaps in our societies getting deeper and wider. Growing gaps between people, between rich and poor, and between the employed and the unemployed. A chasm now forms between educated and the uneducated people and those with access to public welfare and those left outside the safety net. We also see great achievement from those who can mobilise and utilise their potential while large swaths of the population sink into despondency.
This trend seems unstoppable. Gaps widen also between regions and countries. Between those economies and fiscal authorities – governments – who have the capacity and wriggle room for the political measures required for recovery and growth creation, and those who will sink deeper and deeper into an abyss of deficit and public debt. Those gaps cannot sustain themselves nor will people accept them in the longer run.
To address the tension, new political measures should be taken. That means new ways to collaborate between policymakers, public authorities, private sector and civil society explored and built. And most important, reinstate people's trust in society, economy and international system built on mutual interest, security and free and fair trade.
Time for a new deal?
Solving the crises gives us also a chance to do the right things and improve the way our societies function. It starts with improving capitalism. The question is how it can be changed to the better: To create sustainability, equal opportunities and a greater good in society. Critiques of capitalism say its biggest failure is how it lacks the ability to put into play the full potential of our societies' available resources. For example, not employing the full workforce to create value proves a big loss. We could do better. Keeping people unemployed not only forgoes lost economic opportunity but deepens the gap and generates cost for society. The result: Increased social problems, more crime, worsening health, and dysfunctional families. Those factors slash future opportunity for future generations, and in the worst case, social unrest, stirring mistrust and igniting conflicts. Mobilising the workforce proves the best way to solve all of this.
These issues must be addressed and solved, and savings and retail banks should form a impactful part of the solution. Driven and focused to help people build a better financial life, they hold a strong and longstanding commitment to their communities, businesses and civil society. The common destiny between the bank and the society binds it all together. Locally focused savings and retail banks play a role as local hero; they stay through thick and thin. The thrive when society does, becoming even more robust banks. Communities value this business model, especially needed in times we now face.
A way forward
As society faces challenging times ahead, so too does the banking sector. They face a steady stream of untimely blows: Loan losses to be absorbed, business clients to be restructured, missed market opportunities and falling profits. And in the aftermath – changes. Changes in the society, in consumer behavior, for industries and economies. This means also changes for banks. What regulatory climate will banks meet in the future? Will digitisation and technology in general move faster, especially when work life after corona will be more dependent on digital platforms and breakthrough technology? And what role should banks play in the society in the future? This begs the fundamental question: Are we as banks prepared for these changes, and are we willing to take the necessary steps?
To expand further, environmental and social responsibilities lay in the genes and flow in the veins of our banks. Climate change and the green shift has dominated much of the political and public debate. But we know there is more. Social and economic sustainability and well-functioning civil societies remain of paramount importance for future development.
Active engagement in these discussions, and to advocate for the broader ESG perspectives, should be a major task for the savings and retail bank community. The corona pandemic opens new grounds for such initiatives and discussions, and it creates opportunities our community should grasp, taking hold of the benefits they bring.
Reaching our wanted position in this field can only be achieved, however, by recognising the climate challenge and to craft strategies and measures for how our banks can and will contribute to the green “shift". If not, fear mounts that banks might fall in the trap of being thought as defenders of yesterday's solutions and thereby make banks less relevant.
ESG goals can only be reached with joint and combined measures, driven by political forces, industries, consumers and civil society heading in the same direction. Banks cannot save the climate alone, but climate cannot be saved without banks.
Needed to bring our society to the next step, our banking model can play a prominent role. Somewhat positioned in between, private sector, public service and civil society, savings and retail banks can take multiple stakeholder views into account, and we can lean in and contribute into a broad dialogue between policymakers, industries and the civil society. Together, identifying goals, setting measures and developing new way of partnership for a better and brighter future.
Actions to be taken
The savings and retail banking community must continue to deliver a clear message that advocates for a diversified banking sector – that includes community-focused banks – and banking for the greater good of society. Better regulations and better banking: hand in hand. Policymakers must give the nod for the need for a diversified set of banks in the financial landscape, adjusted capital requirements and proportionality in regulation, supervision and reporting. They need to acknowledge that policy measures should be designed to allow banks to fulfill their role in the economy and society.
Beyond policy and back to people, better banking should be designed to take care of customer's needs, backing businesses and growth while ensuring financial stability. Embracing technology and digitisation, but still with a human touch.
While providing better service to people, SMEs and local authorities, savings and retail banking should engage with policymakers and authorities in new ways. They should propose ideas on policy measures to forge a better society. Developing ideas for sustainable growth, entrepreneurship and for better private-public partnerships. Banks can be an efficient channel to unleash public stimulus packages to expand economies, combining government funds with banking expertise, knowledge on business's needs and private capital. This can give better “bang for the bucks" spent, enhanced combined effect and quicker economic rebound and growth.
Savings and retail banks should engage in broader policy discussions beyond economic, aiming to help redesign the system so it works better, and consider these factors:
How resources in society should be distributed to improve both well-being and productivity. Creating jobs and opportunities for the many, not only wealth for the few. Focusing on education, to give all children equal chances and preventing dropouts.
Develop programmes for life-long learning, giving people the possibility to achieve new skills and help themselves. Also, empowering people in their everyday life, for example by strengthening digital competences within society.
Develop joint measures to boost and facilitate economic growth. Support entrepreneurs and job creation, with programmes that help people to start their own businesses. Investments in infrastructure that boost productivity and streamline efficiency.
Support microfinance towards the broadest possible scale, and make financial inclusion happen in all parts of the world. This finance vehicle provides a strong force that can help people, mobilise capital and create value for all. Support those people with creativity, ideas and resources, and help those who need to be helped.
Contributing to better civil societies, based on equality and inclusion, by stimulating the good in people. Gained by enforced efforts from social engagement, public and private capital raised, we can form a better civil society.
The savings and retail banking community should truly commit itself to an enhanced effort to reach the goals that we have set for ourselves since day one. They remain driven to improving people's life through high-impact financial services to strengthen the economy and to support an expanding economy and civil society for the greater good. That's nothing new, and although it's not always said by society, it is a commitment they expect from locally focused banks.
Many might say this goes beyond the role of banks. It doesn't. Serving the greater good falls on the shoulders of all people and institutions, and banks must play their part. As a new era begins, it could mark a new, more impactful day for savings and retail banks. They have never been needed more. I wish them well.
Ole Morten Geving can be contacted at firstname.lastname@example.org