Don’t invest in anything you don’t understand: part 4 of an interview with Gloria Nelund

Bank Responsibility

What obligation does a bank have when they see a customer about to make a purchase that they don’t understand?

Banks have a fiduciary responsibility to tell people the risks. If they see them doing something they think they shouldn’t do, then they should say don’t do this. The government needs our banking system to succeed. It should put banks in a different realm, if you will, than other companies. People rely on them, and assume their money is safe there. It should be safe. At the end of the day, transparency and accountability should be higher in banks than other organizations.

If the purpose of the bank is to make as much money as it can, then it may ignore some of these things. If there is a bigger purpose, then it’s going to be different. What do you believe is the purpose of a bank?

A bank’s role should be to facilitate the flow of capital within a country, and be a safe place for people and businesses to conduct financial transactions. That could be as simple as getting a loan, or it could be setting up a safe escrow between two parties. It could be where actual financial products get created. Most of the banks have as a purpose to facilitate financial transactions, capital market flows, and to protect money for people.

You have hit the nail on the head when you said they got away from that purpose and started focusing just on the needs of the shareholders which translates to making profits.I read a really great book recently, Managing Stakeholders. It talks about balancing the needs of all your stakeholders, not just your shareholders. That includes your employees, your customers, and your vendors. You need to balance all of those successfully. This should be true for any company, but especially for banks.

One banker I talked to recently said the elimination of Glass-Steagall, which had separated banks that could do lending and deposits from banks that did investments, was part of the problem. Eliminating Glass-Steagall enabled banks to decide they could make more money by doing a particular investment than by making this community loan. The bottom line got in the way. What do you think?

I honestly don’t know but I certainly think it contributed. I know they took a long time to make that decision but the change came too hastily. It did allow banks to move away from their purpose of lending, but I don’t know if it was the cause. They did it so that banks could be more financially competitive with their non-bank counterparts, but who says they have to be financially competitive?

Stay tuned for upcoming posts on what Nelund has learned working as a woman in a male-dominated industry, why she quit a job, and her principles for success.  Kind permission is granted by Seattle Pacific University and the Institute for Business, Technology, and Ethics for the use of this material from Ethix magazine, where it first appeared March 2012.