How to start (and run) a bank that puts people and the planet above profit – Next city
The needs were evident around the world – companies like Veritable Vegetable that needed capital to grow – and depositors were coming to the bank in response to its mission-driven promise. But while most of the loans it made were just like loans from any other small community bank, New Resource really failed to deliver on that original promise.
“There are companies that offer a high service or unique products, but in the banking sector, things are mainly a commodity,” explains Siciliano. “If you go out into the world and have a mission, then you really understand better how it informs your loans and blends it with your lending practices. So that people understand the mission.
For the Siciliano community bank veteran, it was a new challenge he found more satisfying than any of his previous turnarounds. Rather than a community based on geography, New Resource Bank was to be a community bank whose community was built on shared values. And if the bank had some sense of these values internally, it needed to spend more time getting to know its potential customers and their values.
“We’ve done a lot of in-depth research on: who are these people? What do they need? Where are they hanging out? Why would they want a bank? How would they find us and where could we find them? Said Siciliano.
To restore credibility and have real conversations with these potential customers, the bank also made an important decision: following the cease and desist order, every loan made by the bank should be aligned with its mission. It was the first decision taken at the bank under Siciliano’s tenure.
“You cannot be half green as an institution,” says Siciliano. “You can’t tell the world, well, we believe in some things, but only do it half the time and still do traditional loans that come from a community bank. … And that was the first big decision which, you know, in the rearview mirror may not seem so important, but at the time it was crucial because it was said to all of our board members. , to our employees, our shareholders, and regulators, we are 100% committed to this mission.
In some ways, this was a huge risk, as it would mean saying no to certain loans that might make a profit for the bank, but that just weren’t aligned with its values around people and the planet.
“We developed our questionnaire, a simple questionnaire that would allow companies to answer questions about practices, and we would rate it,” explains Siciliano. “And we often said ‘no’ at the beginning. We would say, we are really looking for companies that are compatible with this philosophy. How do you feel about this? So that’s usually where the ‘no’ came in. ”
But in other respects the bank had little left to lose. If it was not possible to remain financially viable under this constraint, the bank was already in danger of being closed anyway. As Siciliano explains, committing 100% to mission-oriented loans seemed like the only way to build, or in some cases rebuild, credibility within the bank’s chosen community.
That didn’t necessarily mean that every business he loaned was only in clean tech, organic food, or some other line of business clearly linked to environmental sustainability. But if they wanted to make this loan to a cafe, restaurant, or bookstore, it should be done for the purpose of something related to environmental sustainability, like installing solar panels on the roof of the business or the financing of another. equipment or renovations to reduce the company’s carbon footprint. Or, says Siciliano, it might not be for something like that initially, but there would clearly be the potential for it to happen later with this borrower.
“We didn’t mean that people had to be what we called ‘dark green’,” says Siciliano. “But they had to be traveling. We are all on a journey around sustainability, or for that matter fairness and racism. We just wanted people to be on the trip, and then we could, as part of our relationship with the customer, help them move forward.
Still, that didn’t mean these conversations were always easy. Siciliano, who had just moved from San Diego to San Francisco, had no idea who Veritable Vegetable was when he came to the bank. He later found out that they were the first depositor and that the bank had made an offer to give them a loan, but it was right before the cease-and-desist order, which canceled the loan. But even after the order to cease and desist was terminated in 2010, the loan was not taken over.
“[Veritable Vegetable] thought that they were strangers to us, that we didn’t care about them and that the loan service was non-existent, ”explains Siciliano. “And every time I heard that sort of thing, I made it my personal mission to meet them, follow up and say, hey, you know, I’d like to come meet you, and they said you can. come but it won’t be the happiest reunion. But there I went, and the whole management team was in the room, it’s a business all run by women, so there’s about eight women in the room, and they, you know, kinda so lowered the boom on me.
Understanding your community of borrowers and depositors means realistically assessing risk
Getting to know an industry like organic food – who the players are, what the bottlenecks are, and how things work – has done more than just build or rebuild New Resource Bank’s credibility. It also helped refine the bank’s ability to understand the risks involved in lending to this industry.
Here is a secret about the banks. If they say that a sector or a community is too risky for them to lend, most of the time, it is not because there is in fact too much risk. Most of the time it’s because they haven’t spent the time or don’t want to spend the time understanding the real risks of lending to that community or that industry.
You might expect the banks to be where there is profit, and to some extent that is true. But from their perspective, why go out and learn about a new industry or community when there are a lot of the same old fossil fuels, guns or prisons to take advantage of?
A bank needs a reason to go out and understand a new industry or a new neighborhood. It might take some time to come to that understanding. But if this loan can be done profitably, this understanding can become a competitive advantage, at least for a while. For New Resource Bank, her mission became the reason she strived to understand the industries and business models that other banks avoided.