Beneficial State Foundation Perspectives

Our thoughts on changing the banking system for good and building the new economy

The role of banks in building post-pandemic resilience

two bright yellow sticky notes are on a window. One note says "Sorry we are closed." A not below it says "COVID-19"

What role should banks play to build post-pandemic resilience?

Customers all over the world are calling on their banks to help their communities hurting from COVID-19. Central banks are asking retail banks to do more to serve people during this pandemic. In the US, many banks are following the Federal Reserve’s guidance to work prudently with borrowers who are unable to meet their loan obligations. While this is a step in the right direction, it’s the least we can expect from big banks that had loose credit and deep cash reserves prior to the pandemic. Hopes were high for an economic boom in 2020 when COVID-19 hit. And now, with all of us feeling the pain of a crisis we couldn’t anticipate, we are reminded of the economic injury our economy experienced a mere decade ago.

The banks who claim they are now stepping up are the same ones who played a leading role in the loss of $11.1 trillion in household wealth during the 2008 financial crisis by heavily investing in highly risky assets. Workers and communities rightfully grew skeptical of these big banks whose greed and misdeeds cost us dearly. While it took just a few years for banks to recover and generate record profits, regular people — and especially workers with little formal education — still have not recovered.

Banks were the problem in 2008. In 2020 they could speed the path to recovery, for example, by helping small businesses weather shelter-in-place orders. As we critically analyze how to stabilize our economy with Great Depression-level job losses and the prospect of bankruptcy looming for so many small businesses, we should challenge traditional banks to set a better example. These large banks should be held to a higher standard because their already-stable balance sheets are supported by federal efforts to dampen a recession.

Many industries deemed non-essential have closed their doors and laid off employees while society grapples with replacing the descriptor “low-paid service” worker with “essential” worker. The banking sector is no different. For too long, traditional banks have valued their commercial bankers and back-end staff over their tellers and frontline staff in branches. For example, the median pay for a bank teller in 2019 was $15.02 per hour or $31,230 per year, while a New York City commercial lender’s starting salary was between $70,250 and $133,826.

So, again, what’s the role that banks should play in post-pandemic recovery?

Now is the time for banks to provide all bank staff with a livable wage, full benefits, paid time off, and flexibility to deal with home and family life. Branch employees must be taken care of as they risk their families’ health to provide necessary in-person support to customers while on the frontlines. If banks raise the pay and benefits of essential workers, this could positively affect Black workers who are under-compensated and over-represented in essential jobs in other industries as well such as transit, grocery stores, cleaning, and health care.

As the vital lifeline between the US government and business recovery, banks have both the means and responsibility to meet the immediate credit needs of the communities they serve. But instead of setting the standard for corporate accountability, banks have taken advantage of their role to lend billions of federal dollars to small businesses in crisis. Misusing Paycheck Protection Program funds, the largest banks have left behind businesses owned by people of color. What’s more, banks have made billions of dollars in program-related fees. All of this makes us ask: Who has really benefited from these programs?

Banks are also a vital lifeline for customers trying to smooth out their budgets in hard times. By shifting capital from those who have it to those who need it, banks allow customers to access credit to cover expenses, and to reach their saving goals. But we know credit can be a double-edged sword. If customers head into hard times already overextended — that is, carrying too much debt — that can mean trouble for the stability of the financial industry. In 2008, that systematic over-extension showed up in home mortgage lending practices, triggering huge losses of household wealth. Now in 2020, data shows a similar over-extension in auto loans which could cause waves of auto repossessions.

Banks must implement strategies that increase the likelihood of their customers having a successful financial future. In the case of auto loans, for instance, this could mean placing a moratorium on auto repossessions, forgoing penalty fees, and reducing interest rates to accommodate struggling consumers. For small businesses, mainstream banks can follow the footsteps of community-based lenders by really knowing their customers and being there for them when it matters most.

Let’s make sure we hold banks accountable. Not only now, to help us through this calamity, but to set us up for financial success tomorrow. The banking industry has an opportunity to make good on its promise to communities as an essential service to be protected. But it takes all of us who work at banks, advocates who challenge the status quo, and customers who expect nothing less than equitable committed service. It is up to us to ensure that banks don’t only consider their top shareholders, but instead consider all stakeholders. Banks depend on us to thrive, and we should expect them to help all of us thrive as well.

Quinn is the Program Manager for Beneficial State Foundation’s Systems Change team.

This blog post reflects the author’s personal views and opinions. It does not represent the views and opinions of Beneficial State Bank and/or Beneficial State Foundation.