Banks have reacted to the post-2008 crisis climate in different ways. Some focus on squeaky clean ethical transparency, others on special programs to help poor people
There is nothing new in bank bashing: Post 2008 anyone claiming to “like” banks is suspect in enlightened liberal circles. This side of utopia, no one can seriously imagine a world without them. The issue then is the future: Must banks change? Can they change?
For a start, they may need to re-invent themselves for the younger generation. Not only is 50% of banking now online, but half the under 30s told Gallup Austria they could imagine using non-banks for online transactions, particularly tech brands like Apple or Google. Trust is the key factor, and also the banks’ trump card: When it’s important, people still want the reassurance of personal contact. Yet many banks have not understood the psychology, warned Michael Nitsche of Gallup: “People are sick of call centers with endless waiting and the first thing you see in any bank are machines! People want people.”
There are encouraging signs and one of these shifts is happening right here in Vienna – “social -banking.” The idea is not new. The concept of the common good was sparked by 19th century critics of capitalism like John A. Hobson, leading to the Friendly Societies (customer-owned loan banks) and Friederich Raiffeisen’s self-help structure for the rural poor in Germany’s Rheinland. In 1819 a priest in Vienna’s Leopoldstadt founded a savings bank to help his poorer parishioners, the Erste österreichische Spar-Casse, now Erste Bank. Today, Dr. Gerhard Ruprecht is one of the movers in die Erste’s social banking program and proud of his bank’s return to its roots: “Working for the common good was our founding mandate.”
A bank for the unbankable
The debt trap is a universal problem. Until 2008 banks were offering easy credit, making products like smart phones with €0 cost of entry and -luxurious furniture suites on apparently zero interest payment plans irresistible. Up to 80,000 people in Austria cannot get a bank account and most are victims of the debt trap. The Erste Bank has a solution for these “unbankables” – die Zweite Sparkasse. Costs are kept low: the bank operates out of modest premises resembling an unemployment office and worked by unpaid volunteers, mostly current or retired Erste Bank staffers. Many applicants are referred from the Schuldnerberatung, the city’s debt advisory service.
Director Alexander Maly is a likable man and no system basher, but he is not shy about assigning responsibility: “The debt trap is a combination of poisonous products and Austria’s Metternich style debt collection,” he says, “I have nothing against the market economy,” but people underestimate their commitments and then the trap snaps shut with the Austrian Insolvenzrecht (bankruptcy law).
In Austria, you can only clear your debts after going bankrupt by paying 10% immediately and a fixed amount over 7 years. This may seem like a generously long time, but with cumulative interest the sum owed can double every four years – not an easy hole to climb out of. Then comes the Gerichtsvollzieher, the cleanly efficient (read, brutal) Austrian debt collection system, indeed a hangover from Prince Metternich’s legendary police state.
By comparison, in Germany you pay nothing up front and have only five years to make payments. For Alexander Maly, a change in the law towards the German model would already be an enormous help.
Recent Basel agreements tightening lending rules have reduced the banks’ enthusiasm for questionable loans. Maly’s nightmare: qualitative easing from Frankfurt’s European Central Bank setting off a new round of temptingly cheap credit.
Everyman Accounts – a nightmare for the banks?
From September 2016 an EU directive establishes a basic payments account as a fundamental human right. The legislation will enable a functioning payment account even for those with a negative credit record, who will get a bank card but no online access and zero credit. [One exception – parking garages! Try leaving late at night with zero balance] In Germany, about two million such accounts have been opened. Not surprisingly, major banks are already working on guidelines (Deutsche Kreditwirtschaft) that will still justify declining an account, largely on the usual grounds of insufficient funds, misrepresentation, or – beautifully elastic – rude or threatening behavior to bank employees. Even without the big stick of legislation, commercial banks are already less inclined to demonize bad-credit customers and are adopting a more tolerant (almost) social banking attitude.
Piggy bank economics
The Erste Bank international arm is already rolling out a tailor made Social Bank Concept for the neighboring CEE countries. In the cavernous new atrium, Peter Surek outlined the good.bee credit program in Romania, where over 40% of the population (Eurostat) is RoP (at Risk of Poverty). Simply put, people who can hardly cover the cost of survival. Over 80% of small farmers helped were able to invest in vehicles or something else productive, typically livestock. Almost nothing is saved. “If I have money I buy a pig, if I need money I sell a pig,” they told him. This may not sound like good business, but it is sustainable, and re-invests any profits in the scheme, Surek said. “Social banking is not an on-top project, it’s who we are.”
Loony left meets mainstream
Of course in the world of squeaky-clean idealists, commercial banks are the problem, not the solution. Christine Tschütscher is founding board member of an alternative start-up, Bank für Gemeinwohl, Austria’s first banking venture into the Common Good Economy.
“We’re not a classical bank dedicated to making money, we’re a transparent facilitator,” she told METROPOLE. It’s a different business model: There are no big investors expecting paybacks. Common Good Economy ideology can also save money: management salaries will never be more than five times the lower wages. Costs to customers will be at market levels, so this will not help those at the bottom, rather it replaces the existing model with one based on ethical principles.
Christian Felber is one of those providing the intellectual under-pinning to the Gemeinwohlökonomie (Economy for the Common Good) movement. He is co-founder of the activist group Attac and tireless advocate. Banks will continue to play a role in a Common Good economy, he says, but have to be different. Felber’s future charter for banks is a mix of solid mainstream demands and wilder student flysheet polemics. Eminently reasonable center-left expectations are a concentration on core business (savings, loans and payment systems) and not speculation. Closer to the edge, there will be no dividends and no interest. Loan creditworthiness will be judged on ethical values, such as human dignity. Banks would be (as now) subject to external auditing, but the balance sheet would be a mix of financial and ethical criteria. Considering how far other values like fair trade have moved from the loony left to the mainstream – well, why not?
“It’s not as ambitious as it looks,” he says disarmingly. There are already around 300 companies and a number of banks in Europe practicing ethical economics. For the final step Christian Felber fuses an ominously dictatorial construct with an airy vagueness. “Our present democratic system often does not implement the will of the majority,” he says, citing the Iraq war. The answer is “sovereign democracy” which would delegate power to communities, putting policy in the hands over a 100,000 decision makers. Anyone who has watched the 183 Austrian parliamentarians debating their way to a decision (or sat with a dozen people trying to reach a consensus) will raise an eyebrow.
“Common Good” and “Sovereign Democracy” are stirring battle cries, but at present it looks like the much maligned commercial banks are actually closer to providing realistic banking solutions for lower income people. As Surek put it: “The ethicals are looking to improve transparency in the system. We focus on poverty–endangered clients – if we do it well, it’s more than ethical.” Even the lumbering EU is moving forward with its “everyman account” established as a human right. Of course things go more slowly than most would wish, but it needs time. Christian Felber, who also trains rigorously as a dancer and understands this:
“You cannot dance in a hurry,” he says.