Building Trust and Compassion in Banking Through Transparency and Social Capital

Trust can be restored to banking, when transparency exists to show that the bank and its customers, employees and stakeholders quantifiably improve safety for all, and function holistically as exchanges for capital in all its forms.
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Written by Daniel Martin, Ph.D., and Bruce Cahan, J.D.

The Bank CEO Who Listened

David Brooks recently shared a conversation with a bank CEO. Economists found downside risks to continuing the bank's presence in Italy. The CEO knew staying there would be unprofitable in the short term but didn't want to be a "fair weather friend" and so remained in Italy. The CEO knew that banking is driven by trust, a goodwill asset controlled by customer emotions, not bankers. Research suggests positive emotions (gratitude and happiness) increase trust, and negative emotions (anger, betrayal) decrease trust.

Emotions, Spending, Soothing and Justifying

Banks fund the emotional well-being and suffering of communities by managing the communities' money exchange. A simple example: When depressed, angry or upset, how many of us just go shopping and pay by credit card? We live in a consumer society that encourages material gain as a representation of well-being and status, despite the negative consequences. Sivanathan & Pettit (2010) found that when self-integrity is threatened, consumers purchase status-related goods to soothe psychological pain, especially when they cannot reaffirm status in other ways. Kasser & Ryan (1993) found that people aspiring to financial success achieve less self-actualization and vitality and suffer more depression and heightened anxiety.

Where great financial inequality exists, Economic Systems Justification (ESJ) suggests people justify, accept and protect existing social/economic arrangements. ESJ posits that we justify the status quo to foster social group growth and cohesion through stereotypes and ideologies, even if the status quo is unequal. ESJ helps explain why groups on the bottom of the pyramid of economic/social hierarchies may use unrealistic standards of consumption (expensive, high status purchases), and buy into thinking theirs is an individual not group disadvantage in achieving the iconic "American Dream" (e.g. "Anyone can make it irrespective of status, if you work hard enough. If not, it is due to you/your groups own lack of ability"). For poor and rich alike, striving lives lived on a hedonic treadmill (quenching materialistic desires with no increase in happiness) can become an addiction to unrealistic levels of consumption financed by unsafe bank credit.

Banking, Trust and Transparency

Today, banks often operate as one-way mirrors -- sharing customers' credit data with credit rating agencies, as the access points for merchants, "marketing affiliates" and other banks. Such banks commercialize customer data, the patterns detected, and tune bank credit ratings/fees and product pricing and hide unnecessary consumption. Opaque banks keep customers unaware of the value of saving (instead of spending), or of investing (instead of borrowing to buy more) and how other personal, social and environmental values. A customer's debt to the bank is a bank asset, and when customers can't repay the debt, the banks' asset portfolio declines in value. Banks that make more loans than customers can repay threaten bank safety, their customers and trust in the banking system. Despite living in a Big Data era, bank transparencies are meager, feeble, in need of redesign.

Social, Human and Compassionate Capital: Applications

Communities' safety balances on a mix of capital: financial, social and human. The social capital of banks includes how they connect their clients, co-create relationships and share prospects for thriving. Human capital is exchangeable knowledge, skills and networks that subsequently creates financial capital. Compassion supports cognitive, affective and behavioral outcomes that increase satisfaction and positive emotions, and thus drive more trusted, sustainable outcomes for both bank and customer. Compassionate capital can be built by practices and policies that (1) recognize individual or group suffering or need, (2) empathize and (3) bring targeted resources and strategies to end or mitigate the suffering or need.

When banks help their customers understand the underlying values that drive their banking behavior, customers will regain trust in their banks. Spending enormous sums on fear-based agreements (e.g. default provisions in mortgages) will not repay a loan when a lifecycle event hits. Instead, banks can develop social, human and compassionate capital exchange to grow customer resiliency, corporate social responsibility and trust. When banks exchange social, human and compassionate capital, they become more connected, find solutions from others and develop sustainably. This is not utopian thinking: For starters, bank technologies could let customers invest and save consistently with their own values to promote individually and systemically safer banking through values self-affirmation (understanding what clients actually value).

Evolving Sustainable Banking Research at Stanford University

At Stanford University, we are researching how to design banks that see and underwrite improving the quality of life for all stakeholders. Rethinking and retooling banks requires reacclimating and changing the culture of bankers to focus on growing social, human, and compassionate capital, beyond historically dysfunctional fear-based finance. Trust can be restored to banking, when transparency exists to show that the bank and its customers, employees and stakeholders quantifiably improve safety for all, and function holistically as exchanges for capital in all its forms.

Daniel E. Martin, Ph.D. is an Associate Professor of Management at the California State University, East Bay and a Visiting Associate Professor at the Center for Compassion and Altruism Research and Education (CCARE) at Stanford University.

Bruce Cahan, J.D. is a Visiting Scholar at Stanford University's Department of Civil and Environmental Engineering, a CodeX Fellow at Stanford Center for Legal Informatics, a bank lawyer, merchant banker, pioneer in funding sharable geospatial intelligence and Ashoka social entrepreneur for urban finance and technology innovations.

Come join international experts on compassion and business presenting at one of the first large-scales conferences on compassion and business at Stanford University on April 30, 2013: The Compassion and Business Conference organized by Stanford University's Center for Compassion and Altruism Research and Education. We hope to see you there!

For more by Project Compassion Stanford, click here.

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