What role for social banks in overhaul of financial sector?

Meeting in Brussels in January, the European Federation of Ethical and Alternative Banks and Financiers (FEBEA) saw an important role for social banks in overhauling the financial sector. But there are barriers to social banks assuming this role. The current regulatory environment, in the view of meeting participants, is aimed mainly at the big banks, which have different economies of scale and models, and is not suitable for smaller social investment banks. In addition, participants agreed, there is a need for wider debate and agreement about what responsible lending means and how it can be measured.

A question was also raised as to whether social banks have the operational capacity to carry on providing a good level of service if they are to meet the increasing appetite for ethical finance. And how do their models stand up in the current climate of interest rate cuts? Low interest rates are making it increasingly difficult for social banks to finance their operations because they’re squeezing already small margins.

Finally, social banks have a responsibility to their depositors to ensure their money is used responsibly. Customers buy into the philosophy of social banking in the same way that people who buy Fair Trade products buy into the principle behind that movement. The beliefs of their customers must be ingrained in all parts of the operation.

The meeting followed a conference of the European Coalition for Responsible Credit (ECRC) in November, following which the ECRC and its partners drew up a list of seven principles and called on governments, financial regulators and central banks to establish a new framework for the governance of credit markets.

Malcolm Hayday is Chief Executive of Charity Bank. Email mhayday@charitybank.org

For more information
www.febea.org