By SVMN Volunteers Daniel Brett and Andrea Kochenderfer
You donate to charities, buy locally-sourced organic food, and volunteer with a non-profit, but do you know where your money spends the night? If you did, would you be proud?
Most people do not think about their money playing a tangible role within the amorphous global financial system, yet money is one of the most powerful agents of change. We make thoughtful, values-based decisions on where we spend our money and time, but should where we put our money reflect our values as well?
On Thursday, March 28th, SVMN hosted Vince Siciliano, President and CEO of New Resource Bank, and Daniel Skaff, President of One Pacific Coast Bank, each presented their views on values-based banks and explained how their organizations provide a credible alternative to the traditional banking model.
New Resource Bank was founded in 2006 with a vision of promoting sustainable living in communities. The bank’s mission is to advance sustainability by embedding environmentally friendly best practices into their operations and is committed to using deposits to finance businesses that share their values.
They thoroughly screen businesses to ensure a mission fit between themselves and their loan recipients, which span across several industries: cleantech; green buildings, products and services; and businesses committed to sustainable management practices.
New Resource Bank offers individuals investing options through their Impact CDs which finance new loans to clients in the above sustainability-related sectors. Customers can choose the “impact flavor” when opening a CD, focusing on a particular sector and impact area. Companies financed include City Car Share, Cowgirl Creamery and many Bay Area small businesses.
In his presentation, Siciliano made the distinction between ‘fast banking’, a model focused on growing a bank as fast and as profitably as possible, versus ‘slow banking’. New Resource Bank seeks to be a slow bank, which Siciliano defined as a financial institution that views growth and profitability as secondary to its end goal of building sustainable communities.
One Pacific Coast Bank (OPCB) was founded in 2007 in Oakland with a vision to create a triple-bottom-line bank. Its mission is threefold: OPCB seeks to build prosperity in the communities it serves, maintain the bank’s financial sustainability, and promote environmental resilience.
One Pacific Coast has a unique ownership model. It is a for-profit bank that is owned by a non-profit, One Pacific Coast Foundation. The banks’ profits are only distributed to the Foundation which engages in charitable and educational activities that align with OPCB’s social and environmental goals.
OPCB offers a full line of traditional banking services focused on traditionally underserved, low-income communities and on impactful sectors that need loan capital. While the majority of its business is commercial banking services (95%), OPCB offers several unique programs for consumers, including the Pal emergency loan, an alternative to expensive payday loans that can trap people in a debt cycle. This program is unique in that high-risk Pal emergency loans are guaranteed by a pool of the bank’s profits held by the OPC foundation.
Main Discussion Takeaways:
- Do Beneficial/Sustainable Banks command stronger financial performance than traditional banks? The verdict is not yet out. Speakers cited Triodos Bank (one of the world’s largest sustainable banks) in Europe as having a lower return on equity than comparable European banks, but faster growth. They also stated that mission-driven banks outperformed “too-big-to-fail” banks during the recent economic downturn. While alluding to the possibility that being a beneficial bank makes it easier for New Resource Bank and One Pacific Coast Bank to acquire and retain customers, both presenters said that it was ‘too early to tell’ whether their values-driven approach had benefited their bottom line. Many beneficial banks’ relatively small size may be a more important determinant of their financial performance than their commitment to sustainability or economic justice, Dan Skaff suggested, because larger banks achieve economies of scale, e.g. they are able to offer customers several sequential loans of increasing size. One challenge One Pacific Coast Bank faces is that some clients outgrow them, as these clients want larger loans than OPCB is able to provide. Some successful clients, while they would like to continue working with OPCB, are forced to do business with large traditional banks.
- Have-your-cake-and-eat-it-too syndrome. People want their investments to make a social impact and have best-in-class financial returns, but Siciliano says this is an unrealistic expectation. NRB does not offer the highest CD rates as their primary focus remains mission-based, but NRB’s rates are above average. In order for sustainable/beneficial banking to reach scale, Siciliano suggested that individual customers must accept that while they can expect competitive returns, some trade-off between financial return and social/environmental impact will be made by their bank.
- The “Ben and Jerry” question. Would either speaker allow their organization to be acquired by a traditional bank? No. Both Skaff and Siciliano agree that the traditional profit-driven banking model is incompatible with their mission-driven banking approach, as their banks would be used for marketing purposes and would have limited impact on the acquiring bank’s practices.
- Is beneficial banking in the US harder than ‘traditional’ microfinance in developing countries? Skaff stated that the objective of his pal emergency loan program was to out-compete pernicious lenders in order to put people on a path to credit worthiness. This program parallels traditional microfinance in its focus to displace predatory money lenders in developing countries, but OPCB’s competition is better resourced. The predatory payday loan industry in the US is financed by large commercial banks and unscrupulous business networks, Skaff said. As our program grows and we begin outcompeting these powerful vested interests, “that’s when things start getting interesting for us.”