'Too Good To Fail': Big Ideas For A Big Bank With Values
People are distrustful of big banks, perhaps today more than ever before. It only takes a look at the financial crisis and subsequent trillion-dollar bailoutof banks that were deemed “too big to fail,” or more recently the systemic fraud at Wells Fargo, to understand why. In a quest to scale a different kind of bank, in December 2017, New York’s Amalgamated Bank announced its plan to acquire San Francisco’s New Resource Bank. The $58.5 million purchase would create a first of its kind “platform for a nationwide, values-based financial institution.”
Amalgamated Bank has a 94-year history of building a bank to serve the needs of workers. Founded by a union called The Amalgamated Clothing Workers of America in the 1920s, Amalgamated set itself apart with self-proclaimed “progressive” practices that were innovations in its day, such as offering free savings accounts and lending opportunities to the growing urban industrial working class. The bank also worked with European institutions to pioneer remittance products that allowed immigrant garment workers in the U.S. to send money to their families overseas.
Amalgamated has broadened its focus over time, but its insistence upon positive impact has been unshakeable. “We've always done a lot to support the low- and moderate-income neighborhoods of New York City,” says Keith Mestrich, CEO of Amalgamated. “But what has really distinguished us [from] just being a labor bank, is we support a broader swath of organizations and institutions that include the advocacy community, nonprofit organizations, progressive philanthropy and democratic political institutions.”
In contrast to Amalgamated’s long history, New Resource Bank is a relatively new organization, founded in 2006 in San Francisco. A member of the Global Alliance for Banking on Values, New Resource was founded with the mission to use money as an catalyst of positive change, with an early emphasis on sustainability. A frequent public speaker, Vince Siciliano, CEO of New Resource, often asks audiences the provocative questions, “Where does your money spend the night? Your money is out in the world at work somewhere in the economy. Would you be proud to know what it is doing?”
I spoke with Mestrich and Siciliano about the opportunities for their vision of a values-first big bank to build authentic public trust.
Keith, How do you see the acquisition of New Resource Bank expanding Amalgamated’s impact?
Mestrich: The transaction with New Resource really allows us to think about two things. One is a geographic expansion.
The other is business banking. One example is New Resource’s experience lending to B Corporations and sustainable businesses by having a focused understanding of that industry and people who really understand how to underwrite loans in that space. We're very excited about bringing that into our world, and I think we'll fundamentally change the nature of our commercial lending book.
And Vince, what resources does Amalgamated bring to New Resource Bank? What goals do you have for the merger?
Siciliano: The merger with Amalgamated Bank brings many benefits, such as increased capital, expansion of our consumer products to meet demand for values-based banking, and a greater geography and scope. The merger will enable us to make larger loans and grow our relationships to scale our mission to serve a wider number of social and environmental causes.
Together, we are scaling sustainable banking from coast to coast to confront the serious climate and social inequities of our time and restore the financial system to its proper role in support of people and the planet.
Mergers create opportunity, but often they also cause pain. As two B Corps, how will you approach the merger with the mission-first focus?
Siciliano: We are committed to the highest social and environmental standards throughout the merger. One of the tougher parts of a merger is the redundancies created when you merge two organizations. There is no need for two finance departments or two human resources departments for example, which will lead to some job eliminations. We are committed to the well-being of our staff throughout this process and have structured a generous retention and severance program as well as outplacement counseling services to help our employees on their next step.
Are there certain practices that Amalgamated/New Resource doesn’t engage in that traditional big banks do that people would want to know about?
Mestrich: As a smaller, socially responsible bank, we are able to do things that other banks can’t or won’t. We were the first bank to raise the wage for our employees to $15 an hour. We are passionately committed to sustainability and diversity in our own operations. Our products enable our customers to support the causes that they care about and our lending and investment policies are in line with our values. We won’t lend a dime or invest a nickel of our own money in companies and projects that are working against social, economic or environmental progress. That means we stand up to gun manufacturers and avoid lending to fossil fuel companies.
When you think about what’s next for Amalgamated/New Resource, what does success look like 10 years from now?
Mestrich: We’re thinking about how to become a significantly larger bank that is large enough to have a say in policy and influence the economic direction of the country. We’re going to be able to use our influence and resources to add a socially responsible voice to the economic issues that our country is facing. Whether it’s about fiscal policy or interest rates, we aren’t afraid to join the conversation. We are willing to plant a flag on issues we are passionate about. Because of our union heritage, we have a history of being involved and outspoken on topics including workers’ rights and fair pay, and we are willing to comment when there is an intersection of finance and social justice.
Siciliano: We believe success is being a national values-based consumer and business bank based on the triple-bottom line. In essence, we become one of America’s largest socially responsible banks. We believe we stand as an example of how society can prosper with a bank who has values and purpose built into its DNA and leadership.
Amalgamated has $4.5 billion in assets today. Is there a size you have to reach to have the kind of influence you’ve described?
Mestrich: The federal government deems a $50 billion institution to be a significantly important financial institution—what is often called a “too big to fail” bank. If our community of B Corps and values-driven organizations had its own “too big to fail” bank or its own significantly important financial institution, I think that would really matter. How about we call it“too good to fail”?
Amalgamated often uses the term “progressive,” which carries a certain amount of political baggage. How might that impact the size and scale of what you and New Resource are looking to do on a national scale?
Mestrich: Language is something that we constantly think about. I always think that the challenge and balance is, how do you have broad enough, inclusive language, but also speak to the parts of the community that want to distinguish themselves from the worst aspects of what many businesses are about? I don't have answers, but I do think language matters.
What we use sometimes is, “We're the bank for changemakers,” and we are moving toward becoming “America’s socially responsible bank.” We aren’t going to stop operating in the “progressive” space, but we are embracing that the people leading the charge for social change are the people not just motivated by profit and who are leading socially responsible businesses.
Banking is an interesting thing. There are other B Corp banks in the country. They’re all great banks that are doing great things, but their mission is very localized and geared toward banking individuals.
To be able to bank other businesses and institutions, size actually matters. For one, New Resource will tell you over and over the stories in which they’ve banked high-growth companies, and when they got too big, and New Resource could no longer grow with their capital needs, they had to move on to another larger institution. For the most part, they moved on to a traditional, non-B Corp financial institution. That's not good.
Size matters for a couple of other reasons. One is banking is increasingly becoming this highly online digital experience, and it ain't cheap to develop that stuff, it's not cheap to develop the security that goes with it, and it's not cheap to develop the user experience that is necessary. If you have national ambitions today, you have to be able to figure out how to put the tech infrastructure into it, not to mention the regulatory infrastructure in this industry. It is not cheap to comply with the “safety and soundness” and consumer-protection regulations.
Finally, what many of our clients need, particularly institutionals, is products that aren't necessarily in the normal banker’s toolbox. It requires some level of customization or support to be able to bank for organizations that are in the nonprofit sector or businesses trying to balance profit and purpose. Many of our clients want innovative solutions to their financial problems, and the financial risk associated with that can be hugely impactful. If you're larger, you have the ability to manage that risk more effectively.
What are three reasons why I should move my money to Amalgamated/New Resource? How is my experience going to be different? How will my community or society be different if I move my money?
Mestrich: One is, we cater to people who want a bank that shares their values. It’s about being able to do business with a bank that stands up for workers’ rights, stands up for environmental protection, helps figure out how organizations trying to achieve mission are able to do that, and meets the values of other purpose driven companies. Aligning your banking in that way is important to people, and that's what banking with Amalgamated gives you.
Two, you're not going to sacrifice anything from a products and service-delivery standpoint. We're big enough that we have all the same products that the big-money-center banks do. We don't have some bespoke products like derivatives trading desks and foreign exchange capability, but that's not what most of our clients are looking for. Nobody's giving up experience or product.
Then finally, New Resource has this great slogan, which is, "Do you know where your money sleeps at night?" Knowing that the dollars that you're putting into the bank aren't going to fund the fossil fuel economy or support politicians that want to defund Planned Parenthood or all the kinds of things that you would be embarrassed to have your money supporting. You feel good that your dollars are here go to do good work.
One last thing— 63 percent of American workers don't have enough money in the bank, or anywhere, to handle a $500 emergency expense; they're living paycheck to paycheck. B Corp Rhino Foods has pioneered an Income Advance Program that helps employees get an income advance without the predatory lending practices typically associated with such lending. Could Amalgamated/New Resource replicate that innovation and take that income advance program national? How can you bring your values into the baking industry?
Mestrich: If you could think about a way that those companies sort of said, "One of the ways employees have access to an income advance is if they do direct deposit at a bank like Amalgamated.” We could essentially use the deposit base of those employees to almost fund that program. One of the things I'm kind of obsessed about is this concept of organizing money. The more that we “organize our money,” which is more collective than “move your money,” the more progress we could see.
Siciliano: There are more than 1,000 B Corps in the U.S., the majority of whom do not bank at a B Corp bank today, but all of whom are asked during every certification period who they bank with, and whether it a values-aligned bank. If we are going to move our whole society toward values-based living, which not only does not destroy the earth but manages to regenerate it, then we have to paint a picture for everyone of what “success” really looks like. Success can no longer be measured strictly in terms of financial gain at a significant cost to society and nature. There are many other measures of success which generate well-being for people and the planet. Just as business can be a force for good, so can banking.
Learn about B Corporations and people using business as a force for good, and read the stories of companies leading the way to creating a shared and durable prosperity for all.
Original Article: https://www.forbes.com/sites/jaycoengilbert/2018/04/20/too-good-to-fail-big-ideas-for-a-big-bank-with-values/#5d8c01a1c337