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Triodos Bank comments on the report from the Parliamentary Commission on Banking Standards
PCBS report could change banking for good - but now the real work has to start
19-06-2013 | Triodos Bank comments on today's report from the Parliamentary Commission on Banking Standards:
James Vaccaro, Head of Market Development at Triodos Bank said:
The excellent final report of the Parliamentary Commission for Banking standards, 'Changing banking for good' uses dramatic language to paint a picture of what went wrong in the banking system. While the Commission have made clear recommendations on treating the symptoms the report leaves more questions than answers on the wider systemic issues. But the fact that they identified some of the wider systemic issues is to be commended. They have clearly laid out that this is the start of a process, not the end. And now the work really needs to begin - this could be the most worthwhile 'headache' to have given to the chancellor to deal with. It is essential that he does.
Rules to punish individual senior bankers after a bank failure are necessary and have been well laid out. But to tackle problems before they arise will take more work. Perhaps regulators need to be investigating broader sustainability in banking decisions: banks with high exposure to unsustainable environmental activities should be investigated now - it is unclear how the individuals behind those decisions would be treated. We think that this report could be a helpful step at aligning broader sustainability in banking. For a bank like Triodos Bank, set up to promote sustainability, this is very welcome.
"The emphasis on fines and penalties for individuals paint a picture of a ‘few bad apples’ yet it is the cause of the disease in the orchard we all need to be worrying about as well."
The emphasis on fines and penalties for individuals paint a picture of a 'few bad apples' yet it is the cause of the disease in the orchard we all need to be worrying about as well. This speaks to the other actors in the system. Whilst the commission recommends directors of banks to put financial stability above shareholder interests, institutional shareholders are referred to as primarily acting to earn returns for their clients. We believe that this irony should be challenged: the role of institutional investors as shareholders in banks should be investigated further if there is to be systemic alignment between the suppliers and users of capital.
It is a good sign that the commission recommended that regulators set liquidity and capital ratios and that the UK should not be constrained by the minimums set by international regulation. Indeed, to have a more diverse banking system that the commission want to see, there needs to be a level playing field on the amounts of capital held. And that means levelling up - not down! Triodos Bank currently holds 16% core Tier 1 capital and has a leverage ratio above 9%. That's three times higher than the 3% buffer that the chancellor has mentioned as being acceptable. This has to be addressed urgently and will be the acid test of the effectiveness of implementing this report.
Since liquidity and capital ratios are still not well understood by the public, this should connect to the agenda of Financial Education. People should be able to walk into their bank and ask about the leverage ratio in the same way they ask about interest rates: consumer understanding has to move beyond best-buy tables and financial education has a big role to play in that. As a transparent bank, Triodos Bank publishes all of our loans in every country and every sector we operate in. Greater transparency requires more disclosure by banks but it also requires greater context and understanding of this information by recipients.
Underlying financial stability
Local authorities have been invited to look beyond credit ratings to the underlying financial stability and business model of banks. This is a very welcome move for sustainable banks like us who have been excluded by some institutional deposits due to the excessive importance of credit ratings and the formulaic approach that they have in making assessments. This will allow local authorities to make better choices and help create a more level playing field. The same principle should and very easily could be applied to charities and civil society organisations' deposits.
Overall, we hope that the work of the PCBS is built upon as they suggest through follow-up reviews. In subsequent reviews, it would be good to broaden the current scope of recommendations to include more positive examples of banking in order to develop a more optimistic and ambitious vision of what banking really could be and how we could develop a more prominent socially useful purpose.