Page 32 - Abyssinia Busniess Network November 2019

Banking on of scale and reach because of recent history shows public banks

their ability to create credit and are expected nonetheless to be able
the public their modus operandi of forming to leap into action. They are the first
partnerships with other financiers line of defence in times of crisis when
and investors. But despite the credit becomes scarce, providing
use of taxpayers’ money to bail countercyclical and additional finance
Banking stopped being boring during
the financialized transition to a out the banking system and the to mitigate the economic effects of a
globalized world, and it also stopped recognition that current practices shock.
work against them serving the
serving the needs of the productive
economy. The transformation of productive economy, serious For the Global Green New Deal, the
banking into a high glamour, high banking reform has not taken task is more of a marathon than a
paid, globalized industry came place since the crisis. sprint. Here public banks have another
advantage, because they have a more
with financial deregulation and This is raising new questions diversified portfolio and broader
a surge of cross-border capital
flows. As a result of deregulation, about how to make banks work geographic reach to underserved areas
retail banking activities blended for people and the planet, with and segments of the economy and
with investment activities to create growing attention to the potential (especially development banks) take
financial behemoths operating role of public banking, because it a longer-term approach. By contrast,
is distinctively different or should private (and especially foreign) banks
with an “originate-and-distribute”
business model whereby loans were be from private banking. are known for avoiding such lending
securitized and a range of financial as they pick profitable cherries
services boosted the rents they could The important distinction is that elsewhere.
earn. The resulting shift to packaging, public banks’ goals include social The paradox is that, just as
and developmental objectives, and governments are calling out for
repackaging and trading existing
assets created a system in which the this is the case as much for public much more long-term investment,
bulk of transactions involved other banks operating along commercial they are at the same time exhibiting
financial institutions, predatory lines as it is for development little willingness to give their public
practices became acceptable and banks. They can fulfil these banks the tools for the task. Banks
objectives best when operating need to be able to scale up, to lend
contagion effects were aggravated.
within an articulated system with in the desired directions, and to be
other banks and in close alignment evaluated by performance metrics
The fragility of this system was
exposed during the GFC as an with government policy objectives that fit their developmental mandate.
estimated $50 trillion was wiped off and instruments; however, even However, these three things do not
where this articulation is lacking, often come together.
asset values. But the social cost that
followed the bailout of banks that
had become “too big to fail” was,
if anything, even more corrosive.
At the same time, the damage to
the environment and the cost of
mitigating this is becoming more
and more visible and is also serving
to weld together a broad coalition
seeking a new way forward and more
responsible practices from the world
of banking, alongside other spheres.

The 2030 Agenda requires the
biggest investment push in history
and banks will be called upon to do
their bit. Banks can offer the benefits getting Image

30 Abyssinia Business Nework ህዳር 2012 / November 2019