Banking, the Swedish model
Rising style of lending is built on long-term thinking – and on bearing in mind that the institution is dealing with real people's money.
While many of Europe's largest banks were accumulating "toxic" assets in recent years, a gentler, quieter banking movement was emerging here that espoused a wholly different set of investment values.Skip to next paragraph
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Institutions such as Sweden's Ekobanken aim to not only keep clients' deposits safe, but also to invest in the "social economy," by funding projects like alternative energy, affordable housing, and organic farming.
Although some of the global financial giants have stumbled, these so-called social banks are reporting surprising successes.
"It's back-to-basics banking," says Kristoffer Lüthi, vice managing director of Ekobanken. "Lending out money to people and institutions you believe can pay it back, and not believing in a too-rapid financial development, because that's not sustainable in the long run."
A brisk business for Ekobanken
Located near Stockholm in the picturesque rural town of Järna, Ekobanken opened in 1998. In stark contrast to most of the banking industry "we've never had credit losses," Mr. Lüthi notes.
Last year brought a 12.5 percent increase in customers and a 38 percent jump in bank deposits, raising Ekobanken's balance sheet to about 400 million Swedish kronor (about $50 million). Since Ekobanken started, its balance sheet has risen by between 15 - 20 percent yearly.
Ulla Herlitz, chairwoman of Ekobanken's board, says, "We are working with the real economy and not the financial economy." When asked to define the term, "financial economy," Ms. Herlitz replies, "selling paper."
A May 2008 article in MoneyWeek warned that the world market in derivatives had grown to $596 trillion, noting that this was only "the nominal value of all the underlying assets against which bets have been placed."
Such numbers frustrate the leaders of Ekobanken, who believe many banks have effectively gambled away clients' funds.
"A very simple thing in banking is to know that you're dealing with other people's money," Lüthi says.
Lüthi feels their role should be more than just good-sense banking. It should be "about changing the minds of people, changing the consciousness around money, and also being a voice in society that shows it is possible to make things different," he says.
Operating an interest-free savings-and-loan program for its members since 1970, Sweden's JAK cooperative officially became a bank in 1997. Today, it has roughly $116 million in deposits from its 36,000-plus members. JAK's 2008 credit-loss rates have been less than half those of regional megabanks SEB and Swedbank.
"We think it's important to invest in member education instead of marketing," explains Ann-Mari Svensson, general secretary of the cooperative. "The bank holds seminars where interested members can learn more about the bank and finance at the bank's expense."
JAK's coordinator of international relations, Miguel Gonzo, says his bank is not trying to make a political statement. "Maybe, by what we practice, we're positively changing the society somehow. And if changing the society is political, we're political in this way."
A return to banking's past?
Although JAK and Ekobanken are relatively young, their emphasis on local investment has deep roots. About 150 years ago, small savings banks sprouted throughout Sweden's countryside, a result of financial resources being concentrated in cities. These banks transformed local money into local well-being.