Take the Chance Now To Bank More Sustainably

Obama is right: worldwide reform of the financial system is needed. To do so, pressure from the sustainability movement is indispensable.

President Obama has quickened the debate on the financial system with his proposition to separate business banks from savings banks and set boundaries on their sizes. This goes much further than what — in the Netherlands — the (banking) Maas Committee and the (Parliamentary) De Wit Committee have put on the agenda.

It is a good thing the financial crisis is so thoroughly investigated in our country but the focus of the two committees is directed too much inwards. As such, the next international crisis cannot be prevented. The sustainability movement needs to embrace the plans of Obama and urge for structural reform of the financial sector.

The Maas committee (Advisory Committee on the Future of Banks in the Netherlands) came up with recommendations that have largely been taken up by the Dutch Banking Association. That has led to a new banking code, a kind of self-regulation that is supported by all Dutch banks and went into force on 1 January 2010.

The code is mainly aimed at enforcing the policy of risk management, auditing and compensation. The code also contains a moral-ethical declaration (a banker’s oath) and principles concerning expertise and permanent education (a banker’s exam). All of this is to be applauded, but will it protect us from the next financial crisis?

The banking code can be considered as a serious, positive contribution to the sector, and yet the influence of it on the prevention of renewed adversity will be very limited. That has firstly to do with the global character of the current crisis. The code is by definition restricted to the Netherlands and everyone has found by now that a global crisis can only be solved with global solutions.

A second argument can be borrowed from the hearings of the De Wit Committee (Temporary Committee Investigating Financial Systems). Representatives of the financial sector appear to profoundly disagree with each other on the factual circumstances that led to the crisis.

These differences of opinion are illustrated in two recent books written by renowned bankers. Peter Blom, CEO and chairman of Triodos Bank, passes strong judgment on the failing of bankers in “The New Banking.” Bert Heemskerk, former senior executive of Rabobank, is much more reserved in “A Healthy Shrinkage.” Blom advocates an essential turnaround in the thinking and acting of bankers by introducing the banker’s oath, among other suggestions. According to Heemskerk, most bankers in the Netherlands have “continuously banked in accordance with this code” over the past 40 years.

This debate, mainly focused on its own country regarding reform of the financial sector, is now confronted with the far-reaching propositions of Obama. In the reactions to this debate, two things remain strikingly under-exposed: the role of the Financial Stability Board (FSB) and the role of social organizations.

The FSB, the most important organ of the G-20 (the 20 largest economies plus the European Union) in the field of financial reform, works on recommendations for the upcoming meetings of the G-20. These will be held in June in Canada and in November in South Korea. What the FSB will recommend this year is, of course, not known yet. But the importance and the influence of the FSB can hardly be overestimated.

The exciting thing is that Mario Draghi, president of the Bank of Italy and president of the FSB, immediately responded positively to the propositions of Obama. That can point to a meeting of the minds between the American president and the FSB, which would not only considerably strengthen Obama’s plans but also the recommendations of the FSB.

The role of social organizations (NGOs) is a completely different story. In past decades, the influence of NGOs in matters of governance has starkly increased. As such, Dutch NGOs (Oxfam Novib, Amnesty International, Environmental Defense, FNV Global and Animal Protection) took an important initiative a year ago to encourage banks to operate more sustainably: an honest banking indicator. This enables consumers to choose the most sustainable bank.

Deputy Prime Minister Wouter Bos has set himself squarely within the propositions of Obama. That is of great importance. But a breakthrough in financial sector reform will have to go hand in hand with pressure from the sustainability movement. Therefore, it is necessary that social organizations, as representatives of civil society, let themselves be heard louder in the choir of reactions to the plans of Obama and interfere more intensely with the recommendations over which the FSB is currently brooding.