NFU Key Issues Paper: Acheiving growth through traditional finance
Executive summary
Financial services play a crucial role to secure long term and sustainable growth for societies. The financial sectors provide funding to companies and individuals by acting as intermediaries between those willing to lend and those in need of borrowing, as well as support economic development through providing insurance, pensions, and other financial products. In addition, the financial sectors itself give the economy added value through high innovation and productivity growth, and serving the society with jobs and tax revenues.
In carrying out this role, the financial sectors have a special responsibility towards the society compared to other sectors. If it fails people will suffer, as the financial crisis recently and harshly has shown. NFU’s vision is to strive to make the financial sectors prosper in a way that is sustainable for employees, companies, consumers and society. However, developments in the industry and among policymakers challenge this aim and risk the sustainability of the sectors.
Policymakers and the industry should aim for re-boosting the core values of traditional finance. These values embrace the simple idea that finance exist for the society. This means that financial institutions should balance economic and societal objectives, such as lending to the so called real economy; have a local focus to serve its customers in the best way; aim for long-term and stable profits; be safe and resilient by having qualitative risk assessments and follow EU and national regulations; and have a stakeholder approach in its business models. Many of these characteristics can be found in traditional finance such as retail banking, with local presence and focus, and which takes more factors than only shareholder returns into account.
Today the European Commission looks away from traditional finance as a source of funding when developing legislation supposed to increase investments and thus boosting growth and job creation.3 Through recent years’ regulatory reforms, the European financial sectors have taken major steps towards becoming more resilient and sustainable. Policymakers should make full use of the potential that the reforms have brought along – namely, financial sectors that support economic and job growth on a stable and transparent regulatory foundation.
In addition, the institutions themselves have a large responsibility to carry out and expand their business in a sustainable manner. Only through ensuring a healthy balance between the company's stakeholders can this be done: between shareholders, consumers and employees. In recent years, this triangle has become unbalanced to the disadvantage of the employees - the company's social capital. Sustainability is also about investing in the social capital. Employees are essential for a company's profitmaking and making the necessary risk assessments.
There are several reasons to promote the traditional financial sectors to invest more in the real economy, to boost growth and job creation both within and outside the sectors. Actions must be taken, both by policymakers and the industry. This paper aims to contribute to that discussion.
