Banking Industry Lessons Learned

Why droves of socially conscious consumers are fleeing larger banks for smaller, regional players.


Dennis Kozlowski is outraged. “I sit here and read about a $150 billion bailout of AIG. I compare it to a $6,000 shower curtain,” said the former Tyco CEO in an interview from his jail cell a few weeks ago. “It’s hard to reconcile the two. You couldn’t even closely draw a comparison, at all.”


Kozlowski is absolutely right.



The premier financial institutions of today – AIGBarclay’sBank of AmericaMerrill LynchCitigroup,Goldman Sachs  – make Enron’s 2001 accounting scandal look like child’s play. Evidently banking giants now make a habit out of inflating the value of certain assets, moving losses off the books and convincing accountants to look the other way. Such tactics have put investors at risk and cost taxpayers hundreds of billions of dollars. Meanwhile, fewer than 5 percent of bailed out banks will say where the money went.


Have these banks learned a single lesson from Enron’s past mistakes? Apparently not. And what’s more, the Sarbanes-Oxley Act (SOX) – which was created in an effort to improve disclosure provisions, ensure auditor independence and strengthen corporate governance procedures – hasn’t made a drip of difference. There seems to be less financial transparency and oversight today than there was before SOX was instated in 2002.


But even as legislation flounders and banking giants stay their course, the public moves in a new direction. A record number of people are flocking toward ethical, transparent and financially solvent companies like Boston-based Wainwright Bank & Trust and Bristol-based Triodos Bank


Here are two community banks that, albeit on a smaller scale, manage to thrive despite the ongoing credit and investor confidence crises. While Triodos experienced 8 percent growth during 2008, Wainwright’s first quarter 2009 profits increased an impressive 33 percent


“All this turmoil in the financial markets has continued to create opportunities for us to capture additional market share,” says Wainwright founder and co-chairman Richard Glassman. “We are pleased that there continues to be a market for our products and approach.”


The “approach” of which Glassman speaks is key. In fact, both Wainwright and Triodos sell the same products that you can find at any big bank – checking accounts, savings accounts, loans, etcetera. That’s not what drives their performance. It’s how they sell their products, how they conduct business overall, that sets them apart from their peers. 


At Wainwright a socially progressive agenda represents an ever-important second bottom line to the company. “One platform sustains the other,” Glassman explains. “Our business success is fueled by the difference we make in our community.” 


To date Wainwright has issued over $700 million in loans to community development projects like affordable housing and HIV/AIDS services. Remarkably, it has experienced virtually no defaults on those loans. In addition Wainwright has the highest level of customer loyalty and lowest rate of employee turnover in its industry. 


Triodos also thrives by helping to improve people’s lives for the better.  “We want to act as a bridge between savers and investors on the one hand, and sustainable companies and projects that need financing on the other,” explains board Chairman Peter Blom. “[With us] savers and investors know what happens with their money. In this respect, the banking sector has failed badly in recent years.”


Wainwright and Triodos aren’t the only ones profiting from systemic failures on Wall Street. Community banks across America and Europe are benefiting, as customers seek institutions they can trust


At the UK’s Co-Operative Bank for instance, pre-tax 2008 profits increased 69 percent from 2007. At California Community Bank, first quarter 2009 growth increased 26 percent from 2008. And at Liberty Bell Bank in Cherry Hill, N.J., first quarter 2009 growth increased 14 percent.


A recent survey conducted by Independent Community Bankers confirms that these results are not atypical. Community banks are getting new customers at a faster rate than in the past, with 57 percent experiencing an increase in new retail customers and 47 percent seeing an increase in new business customers compared to last year. 


Though not immune to the challenges facing all financial institutions, community banks do offer realistic and profitable alternatives to traditional banking methods. 


To start with, rather than serving the narrow interests of a few shareholders, community banks acknowledge wider stakeholder communities. As opposed to treating lower-income customers and charitable organizations as a liability, they view them as a worthy opportunity. Instead of hiding risk, they openly disclose their investments and methods. As an alternative to pushing product, they prioritize people and relationships. And in lieu of imposing pre-set terms, many community banks structure loans around the needs of individual borrowers. 


“When Wainwright was founded, it was one of fourteen thousand banks in an undifferentiated industry with fungible products and commodity pricing,” says Glassman. “Now we’ve ended up as one of our region’s best-known banks with a constituency that knows exactly who we are and absolutely loves what we do differently.”


The fact is that community banks are genuinely different, which is why they are the preferred choice by more people around the world. Their lessons turn conventional banking wisdom on its head. Let’s just hope it stays that way.


About the author

Christine Arena is an award-winning author, brand strategist and trend forecaster. She is co-founder and CEO at GENEROUS, a creative marketing agency for visionary startups