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Real Economy – Real Returns: The Business Case for Values-based Banking

In less than 12 months it will be ten years since the collapse of Lehman Brothers, an event signifying the start of the financial crisis that deeply impacted society. As we near that date, it is timely to reflect on a core question recently posed by Rana Foroohar:

 

(H)ow to create a financial system that really serves society?[1]

 

A real economy[2] serving society requires enterprises and individuals that place people before profit, focusing their resources on activities that deliver economic resiliency, environmental regeneration and social empowerment for the communities and people they serve. Banking and financial institutions are uniquely positioned to provide critical financial products and services needed to support enterprises and individuals in these initiatives.

Since the financial crisis, a group of VBBs (all members of the Global Alliance for Banking on Values (GABV)), have demonstrated that a focus on the real economy with a dedication to supporting economic, social and environmental impact delivers steady financial returns. These entities operate in numerous markets, serve diverse needs, use distinct business models but share a common strategic foundation: the Principles of Values-based Banking. They are growing because they provide economically viable banking alternatives focused on the needs of society thereby creating a more diverse financial ecosystem.

Since 2012 the GABV has published research comparing the results of VBBs with the largest banks in the world, the Global Systemically Important Banks (GSIBs). This research originally looked at financial results through year-end 2010 and is now updated through year-end 2016. It is striking that with the crisis now several years behind us, the conclusions fundamentally remain the same.

VBBs have constantly shown that serving the real economy delivers better and more stable financial returns than those shown by the largest banks in the world. These VBBs address the very real banking needs, especially for credit access, of enterprises and individuals within their communities. The questions remains: Why isn’t all banking done this way?

 

Read the full report below, and download here.

 

 

 


[1] “How Big Banks Become Our Masters”, Rana Foroohar, New York Times, 27 September 2017

[2] The real economy relates to economic activities that generate goods and services as opposed to a financial economy that is concerned exclusively with activities in the financial markets.

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