Visionaries of the Meaning Economy is an interview series by Manuel Maqueda that explores how meaning is transforming the economy, and our future. This interview features SVN member, Kat Taylor, co-founder and co-CEO of Beneficial State Bank.
I use the term fierce love to describe a peculiar trait of character that blesses certain activists, truth-tellers and myth-busters. They are natural, authentic, and unassuming, but their normality somehow stirs deep unrest. Rooted in their values, they are steadfast in the pursuit of their vision, and unyielding in their compassion. To find a female bank CEO gifted with fierce love is a brilliant signal, beaming to us from a better future through the fogs of the rapid unraveling of our world. It takes a great deal of vision to recognize banking as a powerful avenue to co-create a just and life-nurturing way of being on this planet. But it takes a lot more than vision to actually embark on this journey, successfully, honestly, and relentlessly. In this interview, Kat Taylor, co-founder and co-CEO of Beneficial State Bank, shares with us defining elements of her roadmap towards a transformational way of banking – as well as her views on a male-dominated and abusive financial system that is ripe for disruption.
You are a woman CEO in a traditionally male-dominated industry. Does this send a signal to the industry -and to other women in finance?
Kat Taylor: Yes. Diversity and inclusion is one of the cultural markers that we want to be guided by. This is an industry that has not been characterized by diversity, and the pipeline for women leaders is slim, so we have to play a lot of catch-up. We adhere to many certifications in order to challenge ourselves to do better, and funnily enough, in the Just Label we scored poorly on gender diversity because we have too many women! So we went back and said: when you have been male-dominated as an industry, you have to have too many women, the pipeline has to be bigger, not smaller.
In addition, I believe women executives in banking are still up against a glass ceiling, and it’s not just the money part, but also your ability to have influence and to be heard in the organization.
Beneficial State Bank has a unique model of ownership and a unique way of doing business. Would you explain how it works?Having provided the capital for the bank we didn’t want to profit -or appear to profit – from the bank, especially with the focus of serving low-income communities. So we gave all the economic rights of the bank to the (Beneficial State) foundation, which is governed as a public charity, which means that its board is always appointed by other public charities in its majority and has to serve the public interest. In addition, the bylaws of the foundation mandate that any profits the bank distributes – which can only go to the foundation– must be reinvested in the low-income communities that we serve, and the environment upon which we all depend. Moreover it eliminates the private shareholder from the ownership structure; we didn’t want that pressure because we want to observe the triple bottom line of social justice, environmental wellbeing and financial sustainability.
How did your passion originate? And why a bank?
As a tiny child, I was very influenced by the Civil Rights Movement. I was born in 1958, and while I was largely outside of the movement, by age and my own circumstances, I realized that I couldn’t live in a society that allows such injustice to pursue. That has been a driver for me for a very long time –and I guess part of it is being a meddlesome, bossy person who likes to think that I have some ideas to try out! (laughs.)
I do come from a family that is involved in banking. When I was young I thought banking was pretty boring and irrelevant, but years later, when I was in graduate school and wanting to be of service to the Civil Rights Movement, a lot of the leadership in the movement recognized that legal rights without economic opportunity and access were going to be hollow.
Banking to us is the original and most powerful form of crowdfunding. It’s a very powerful practice: leveraged, recycled, disciplined, regulated, and monitored. We need to get it right, because when it’s good, it’s very, very good, but when it’s bad… it’s very, very bad.
How do your lending practices support your mission?
To really give meaning to our triple bottom line, not just rhetoric, we needed to make sure that our lending practice was producing those values, so we have a commitment that 75% or more of our loan dollars would always be in the new economy. We define the new economy as fully inclusive, racially and gender just, and environmentally sound. Moreover, the other 25% can’t be in hands that are undermining our mission, so we are very choosy and we try very hard not to lend to counter-mission activities.
How do you measure and demonstrate your impact?
We need to show up as a corporation by publishing evidence about how we behave. We are about to release our new outcome metrics showing how many units of affordable housing, how much renewable energy, how many living wage jobs fully benefited… does the lending produce. In addition, we are a community development financial institution, which is a statute designated by Treasury, and we have to report on that annually, and re-certify every three years. We are B-Corporation, very highly rated, and every other year we do the B assessment, which is over 200 questions, and there has to be evidence by documentation, etc. We are also Just labeled, etc…
I hate banking. And I think that the customer experience of banking is awful. Are you doing anything for people like me?
(Laughs and nods in agreement.) This is a critical focus of the bank right now. Millennials and rejecting banking in droves. They are rejecting the user experience that you just described. They want to trust a person, but the modern bank customer has 232 touches with their bank per month (30 years ago they might have had 12) and 231 of those are through a device, not through a person. So there is a huge shift and we want to catch up to it. We are held back by our size and by the legacy of banking core systems. The user experience in banking is quite poor, the cost structure is irrational, and it’s prime for disruption by more advanced technology platforms -which still need to have regulatory approval and compliance, which is a drag for innovation.
But also, in the latest Gallup poll, banks were third from the bottom in popularity, right above oil and gas, and the Federal Government. People hate banks. It’s a four letter word. They hate banks because of all the abuse, because of the user experience, and the uneasy sense that banks are hurting us. We are attending to a no harm approach, we are going to try to get technology forward as soon as we can, and we are trying to show up as a good actor. We’ve got a lot of bad will to overcome.
What are your achievements so far, what are your challenges, and how are you being transformed by the journey?
We have been profitable on core earnings from some time with a model that is delivering a lot of impact and has alignment. That’s really important because we had to prove the model first –and I believe we have. The challenge –and we are not alone- has been to self-organize as humans beings in a way that opens up the diversity in decision-making. It’s just hard to organize human beings, and we work hard at that all the time.
I’ve been transformed by the remarkable human beings that have come to this cause. I feel very humbled. I feel like Frodo when Gandalf marked his door, and then interesting people starting showing up, and you don’t even know why.
Also, to be perfectly honest, I am probably just obsessed with this journey, so I’m going to have to remember that are other things in life too (laughs.)
What’s in the future for Beneficial State Bank?
We are dying to be of service in the great agricultural valleys of California, Oregon and Washington. Agriculture, in our view, is the dominant way that we tend to planetary care, and we need to get it right.
We need to grow ourselves, to have scale for modern bank economics and influence. We have to get our culture right –probably the hardest thing we do. We need to help more people take initiative out of poverty through responsible bank products. We better get going in averting climate disaster by really supporting emissions reduction, but also carbon sequestration in reliable, responsible ways…
A lot to be done, and a lot of people to meet.
What do mainstream banks think of you? Are you influencing them?
Honestly, I think they probably find us highly irrelevant. But maybe not for long!
It’s not likely that the main banking system is going to feel influenced by a very small financial institution like us -except for some strategies that we think over time will bear out. One of them is to awaken the depositors, not only that they don’t have to have to support activities that are harmful to them, but that they have a place to go, a beneficial bank –it doesn’t even have to be ours. We need to alert them to the power that they hold over the financial system. So to migrate deposit capital is a long-term plan, and another one is to migrate equity capital. Also, finally, there is human capital: we have an entire generation springing into the workforce who wants an integrated life, they don’t want to do one activity at work and then try to make up for it on the weekends, or when they are old.
We want to change the banking system for good, nothing less than that. Along the way we have to build a very good model, and execute well.
Conversely, you are a part of a larger movement meaning-driven banks. What is the relationship among ethical banks? Do you see each other as competitors?
The blessed unrest is coming together, in my view. We belong to the Global Alliance for Banking on Values. Most of the members are much larger than us, such as Triodos (branches in Belgium, Germany, Netherlands, Spain, and the United Kingdom), GLS Bank in Germany, Mibanco in Peru, BRAC Bank in Bangladesh… This group of banks has consistently outperformed the rest of the banking industry. This has a lot to do with reduced volatility, which makes sense because they are taking less risk and are more mindful of managing all risks, not only financial performance. The alliance of purpose-driven banks is organized around win-win, the belief that we are going to do better together than apart, and that it does little good to have a dog fight and wake up as the winner of nothing.
In addition to fostering benefit for all, you talk about a “harm to none” approach. Could you say more?
Harm to none is really important. There is no doubt that good lending practices are being done in large banks, in some of their very elite units devoted to CRA-driven (Community Reinvestment Act) community lending. They are very good at it, but they are dragging a train of misery behind that is a long as California, and that is represented by activities like: creating an auto lending bubble that is going to be just horrible; hiring 400 full time employees to lean into oil and gas exploration; hiring most of their workforce on a part-time, unben efited basis; incurring billions and billions of dollars of penalty fees for abusing consumers in banking as a cost of doing business,….
These are the practices we really have to stop. As inglorious as it sounds, it is much more about what we don’t do, than what we do.
What type of regulations would you like to see implemented in the banking system?
First, limit the absolute size of banks. We can’t have banks that could single-handedly bring the system down. Second, require that they all keep a healthy capital buffer, like the 10% ratio that we keep. Society needs that buffer, and it slows down the risk-taking a bit. Third, don’t allow speculative investment to use deposit funding, as it is a wildly inappropriate match of risk profiles. And lastly, let them fail. Never save a bank again!
Manuel Maqueda is an economist, a social entrepreneur, and the author of the forthcoming book The Meaning Economy. Visit www.meaning.ec for more interviews and extra content.