Banks should be America’s most ethical source for crowdfunding a New Economy
Like others who have jumped into the fray to voice outrage, we also deplore the bank abuses that most recently drew fines of $185 million against (this time) Wells Fargo.
Yet our collective teeth gnashing doesn’t go far enough. The CFPB’s courage and diligence notwithstanding, even fines that sound so high do not deter unwanted behaviors. And as the record below reveals, these fraudulent activities are just the tip of the iceberg.
This latest penalty joins fines against banks for abusive activities totaling $235 billion since 2008. And they span a much broader set of activities. Since 2008 alone, the damage includes:
- 4,900,000 homes — and nest eggs — wiped out,
- $257 billion to finance coal mining in the last five years which, though legal, delays progress toward an advanced energy economy with good, clean jobs for all,
- One third of bank tellers on some form of public assistance, while their highest paid bosses reap the spoils of bank culture.
This train of misery falls disproportionately on communities of color, who saw their wealth decrease at disproportionate rates during the financial crisis and who most often live in areas most affected by environmental pollution.
Fines alone aren’t working as long as executive compensation and stock prices aren’t as meaningfully impacted. And to lay the blame solely on employees who were urged if not outright pressured to meet unrealistic sales goals is simply layering insult on top of injury. 5,300 people — now out of a job — did not come up with the same idea on their own.
Banking can be seen as the original and most powerful form of crowdfunding.
It’s not that a specific deposit funds a specific loan but all deposits fund a lending practice, and that practice needs to be aligned with the public interest. Since we the public entrust nearly $12 trillion of deposits to the banking system, facilitated by FDIC insurance, banks must uphold our highest values — trust, fairness, and equity — as well as the safety, soundness, and security of the system.
Given those privileges and mandates, banks should be financing a fully-inclusive, racially and gender just, environmentally regenerative economy.
And that’s all.
As a much smaller bank regulated in the banking system alongside Wells Fargo, we have suggested from our origin that reform is still necessary at the systems level. We must change the banking system for good. Otherwise, competitive pressure, sales incentives, and corporate cultures induce the banks to use their enormous power to render unacceptable societal outcomes.
In 2009, we suggested four simple rules to bring banking back into alignment with the public interest:
- Limit the size of each bank to one that does not imperil the system even if that bank fails (and that asset size likely doesn’t end in a “trillion”)
- Reinstate a rule (like the Volcker Rule) to prohibit banks from trading securities.
- Require that all banks hold 10% tier 1 capital as a buffer for safety.
- Let them fail — in response to poor financial performance or gross abuses.
Even with these four rules we have to take back the banking system ourselves by banking on our values. Only then will the equity shareholders discipline executives to run banks that are safe, sound, AND avoid abusive practices.
Holding our collective funds is an enormous privilege that the banks have been abusing for too long. Real penalties — like revoking a charter, docking executive pay, and loss of license in business lines — are essential to real reform. We ourselves would happily submit to THAT incentive system.
Let’s align our banking with our values because that’s the only way we can change the banking system for good.
On Oct. 6, this letter-to-the-editor was published in the SF Business Times.
Follow us on Twitter @BeneficialStFdn to learn more about how you can help to change the banking system for good!
