Banks have been trying to rebuild trust since the global financial crisis. They have touted corporate responsibility and stakeholder capitalism as core tenets of their businesses. Covid-19 and the subsequent economic crisis will be a big test of their commitment.
“We’ve been through 9/11, Sars, Ebola, acute crises in different regions of the world and of course the 2008 financial crisis,” says Anne Finucane, vice-chairman at Bank of America and head of its environmental, social and governance committee.
“We are adequately prepared to weather this pandemic from a capital and liquidity perspective. But none of us have experienced the magnitude of this pandemic.”
When Euromoney talks to Finucane on April 23, it is just a month after the first US state, California, issued stay-at-home orders. What feels like a lifetime is really only what has been called the ‘early innings’ of the Covid-19 pandemic and its subsequent economic fallout.
“No one can be fully ready for something like this,” says Finucane. But, she continues, “there have been dress rehearsals for this moment.” Anne Finucane, vice-chairman at Bank of America and head of its environmental, social and governance committee She is referring to BofA’s responsible growth principles that were set in 2014, but that have driven the bank’s strategy since the financial crisis under chief executive Brian Moynihan. Finucane ticks off all the bank has achieved over the last decade in addition to higher capital ratios: a $20 US hourly minimum wage; employee diversity; pay parity; “a doubling down on technology and a jettisoning of certain business lines”; greater financing of affordable housing; increased lending to women and low-to-moderate-income communities; issuance of green bonds and underwriting tax equity products; and renewables financing.
In the middle of a crisis, each one of these commitments has helped with the bank’s response and resiliency, says Finucane. Indeed, Moynihan has emerged as a spokesman for the industry in the US during this crisis, perhaps because of his long-term focus on responsible banking. He has been public about the commitments the bank is making to charity, its employees and to its clients. He has advised non-customers to stay with their current bank so that they can be served more quickly by a business with which they already have a relationship, rather than trying to join BofA where they won’t be in line for loans – as well as assuring them they can cash their cheques for free at BofA branches. It’s not just BofA that has been prepared to respond to the crisis. It’s been encouraging to see the spirit of ‘let’s do what we need to do and what we can do, and we will deal with our problems when they come – Simone Dettling, PRB Since 2008 banks around the world have invested resources in supporting the health and wellness of employees, improving their connections with their communities, creating products that better align with the social and environmental values of clients, reducing finance to environmentally destructive practices and developing tools to better support the financial health of the communities in which they operate.
This is responsible banking – stakeholder capitalism, if you prefer – and the world’s largest banks got on board before the coronavirus crisis. They had to after the battering their reputations took during and after the financial crisis. Banks have since cleaned up their shops, not just because regulators have demanded higher capital ratios but because society has insisted upon it. Indeed, every stakeholder has demanded banks take steps towards becoming the responsible stewards they were always supposed to be. Flanking those steps have been statements of purpose, announcements of principles, initiatives, examples of ‘good deeds’ dotted throughout annual reports and endless press releases.
A healthy air of mistrust remains, however. Society has never really known whether or not bank efforts ranging from diversity to environmental policy were anything more than window dressing. But in a pandemic, they are being called upon to act, alongside hospitals, emergency services, food suppliers and distributors, because of their essential role in the economy and society. Every one of their stakeholders needs them – governments included. It is the greatest test to date of what responsible banking means in practice. And it is demonstrating why responsible banking was never just a ‘nice to have’ but absolutely critical.