How should banks fulfil their responsibility to society? As stakeholder capitalism suggests, they should respond to and serve not only shareholders, but society at large: the communities they support with their products and their operations. It is the kind of responsibility that seems fluid, however. While share prices are a clear indication of shareholders’ satisfaction, there is no measure of what pleases stakeholders.
Take the example of UniCredit. At the end of November, chief executive Jean Pierre Mustier announced he would part ways with Italy’s second largest lender in April, at the end of his term, following a disagreement with the board on strategy. The Italian government encouraged a takeover of ailing peer Monte dei Paschi di Siena (MPS), which UniCredit’s board and Mr Mustier agreed to consider only if ‘cost-neutral’ for the bank. MPS had previously been bailed out when Pier Carlo Padoan, UniCredit’s incoming chairman, served as finance minister. This piled on tensions about the future of the bank and whether it should focus on domestic growth, which the board favoured, or on cost-cutting and international ambitions, as Mr Mustier had suggested.
UniCredit’s board is almost entirely made up of Italian directors. The bank’s shareholders are largely international: only 13% of its shares are held by retail investors, while of all its institutional investors, which control 68% of the capital, only 2% are Italian. In private, some have pointed to this mismatch as a cause of tension. Others, more openly, such as Bank of Italy deputy governor Alessandra Perrazzelli, believe that foreigners – or rather, the foreign media – simply misinterpret what goes on in the country, as she told me during a panel discussion at the FT Global Banking Summit in December.
The question as to what is best for a country in relation to the management of its private sector banks, however, remains unanswered. As does the question about the role that banks should play in supporting national economies at the expense, potentially, of their balance sheet.
Naturally, this dilemma has a more straightforward solution for government-owned lenders. Around the time of Mr Mustier’s announcement, an employee at a foreign state bank operating in Europe told me that his national regulator clearly let him know that he would be judged on the impact his work has on people. This, it quickly transpired, meant ignoring the risks to local operations posed by certain clients’ activities or by public officials’ large credit card bills. Few would accept this as a definition of positive social impact. While some readers of The Banker might believe that state banks are a good use of public resources, it is likely that most have faced the issue of how their own shareholder-owned bank could support clients, notwithstanding risk management considerations during Covid-19.
The pandemic has given new life to theories in favour of ‘big government’. Economist Mariana Mazzucato, for example, believes that the crisis has highlighted the need to revisit the relationship between the public and private sectors. A few months into the crisis, she told me: “Just as regulators act to prevent banks building systemic exposures in speculative assets, so too should they provide guidance to steer credit allocation towards activities that support sustainable, inclusive growth. This could be achieved by coordinating monetary and fiscal policy in support of a green industrial strategy, or by using state investment banks and patient public finance to ‘crowd in’ private finance.”
Government influence on the activity of private sector banks is a controversial subject. It may be accepted in some markets more than others; while in most, private sector support would be called upon in times of crisis. Even as the world emerges from the pandemic in 2021, it is worth examining the implications of the public-private sector relationship on the future role of banks. Otherwise, lack of definition and understanding of banks’ social role, and the potential trade-offs it may create for shareholders, will likely get in the way of sound, sustainable business decisions.
Silvia Pavoni is the economics editor at The Banker.
