A new report by Transform Finance and Beneficial State Foundation offers a guide for banks on how to involve community members in banking decisions.
What’s in the report: The report defines three broad categories of participatory investing in banking:
- Direct Participatory Investing: Banks adopt participatory governance mechanisms at the bank level itself. Examples include revisiting board constitution or the bank ownership structure itself (ie Vermont Community Loan Fund); establishing community advisory boards or special planning committees; and creating program-specific pools of capital that allow grassroots stakeholders to direct bank investments (ie La Montañita Co-Op).
- Indirect Participatory Investing: Banks prioritize and capitalize Participatory Investment Projects. Examples include buying notes in community-governed funds or providing loans for community-led real estate development projects.
- Participatory Investing-Adjacent Investments: Banks invest in entities that result in shared community ownership, even if those investments aren’t being directed by community actors themselves. Examples include building a loan portfolio of worker-owned cooperatives or financing Community Land Trusts.
Why now: With the recent collapse of Silicon Valley Bank and associated fallout, the banking system is on thin ice. Now is a good time to discuss different models for banks writ large.
The argument: The report argues that participatory banking is good for business, for a number of reasons:
- Trust: Building trust with the community can lead to a more stable and loyal customer based
- Customer insights: Better informing product and service offerings. You’ll stay ahead of your customers’ needs, better equipped to serve them now and in the future.
- Risk-management: It can improve CRA and other exam performance, helping you to manage your risk; you are likely to be more compliant by being more connected.
What else: The report makes the case that participatory banking can improve CRA and other exam performance, helping you to manage your risk; you are likely to be more compliant by being more connected.
Bottom line: Participatory Investment can support redistribution to align the depositor-banker relationship better—balancing the banker’s ability with the depositor’s ambition.