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Banking reform comment from Triodos Bank

21-12-2012 | Commenting on the banking reform proposals from the Parliamentary Commission on Banking, Charles Middleton, managing director at Triodos Bank UK, said:

‘We agree with the Commission’s conclusions that the current proposals are not strict enough and do not go far enough. We agree that banks’ retail and investment functions should be separated. For too long we have been underwriting the speculative activities of so called ‘too big to fail’ banks, through deposit guarantee schemes, guaranteeing the more risky, non-lending parts of their balance sheets and ultimately therefore giving the wrong incentives for such speculation.

‘We are calling for UK politicians and regulators consider sustainable banking models as an important reference point for making our banking system more resilient in the future and to ensure banks are encouraged to return to serving the real economy rather than being incentive-driven.

‘A recent report from the Global Alliance for Banking on Values* (of which Triodos Bank is a founder) revealed that, over the last decade (2002-2011), dominant big banks have lent less, attracted fewer deposits and have maintained a weaker capital base when compared to values-based banks such as Triodos Bank. The study also revealed that sustainable banks are more likely to be tangibly investing more in a greener and fairer society, and that their business model is more robust and resilient.

‘In considering what a reformed UK banking system should look like, regulators should bear in mind the fact that the dominant banks’ reliance on more volatile funding sources has led to liquidity risk and excessive interconnectivity, making them significant systemic risks. If dominant banks are allowed to continue in this way, little will change.

‘In the context of banks being urged both to raise more capital and increase lending, there appears to be a blind spot in the thinking about the future business model for banks. The GABV banks offer a credible model of well-capitalised relationship banking that is already operating at some scale. Indeed, the GABV study proved that a sustainable banking model, one that has at its core long-term client relationships and a direct understanding of their economic activities and the risks involved, delivers performance that is less volatile and less dependent on leverage than that of ‘too big to fail’ banks.

‘UK regulators should seize this as the chance to bring back relationship banking in its truest form. Further growth of banks focused on the Principles of Sustainable Banking could provide a way forward for a financial system that would be better equipped to meet society’s development and environmental needs while delivering solid financial returns.’

ENDS

*In November 2012 The Global Alliance for Banking on Values (GABV) released the 'Strong and Straightforward: The Business Case for Sustainable Banking' report today, comparing the financial performance of 22 sustainable banks, and 28 of the world's Globally Systemically Important Financial Institutions (GISIFs) between 2002 and 2011.

http://www.gabv.org/our-news/study-reveals-striking-differences-between-sustainable-banks-and-too-big-to-fail-banks

For further information, case studies or interviews, please contact:

Will Ferguson,

William.ferguson@triodos.co.uk 0117 980 9770 / 07899 965640

Faye Holst,

faye.holst@triodos.co.uk 0117 980 9584 / 0755 778 5167

Lisa Stanley,

lisa.stanley@triodos.co.uk 0117 980 9721 / 07983 002013

About Triodos Bank

Triodos Bank only finances enterprises which create social, environmental or cultural added value. Key sectors include organic food and farming, renewable energy, social housing, and fair trade. Transparency is a core value and Triodos publishes details of every business it lends to. A range of personal savings accounts is offered, and full banking services are available for businesses and charities. Triodos Bank is an independent bank founded in the Netherlands in 1980. Its principles and independence are protected through a special shareholding trust. The UK office opened in 1995 and is based in Bristol. www.triodos.co.uk

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