The Los Angeles City Council last month unanimously passed an ordinance requiring banks receiving city funds (which total $6 billion) to communicate how they are reinvesting in the local community. New York and Portland, Ore., passed similar laws within 24 hours and several other major cities have also recently adopted responsible banking ordinances, including San Diego, San Francisco, Seattle, Philadelphia, Pittsburgh, Cleveland and Boston.
These new laws are intended to enable a city and its residents to identify which financial institutions are helping the community and which are not; but what does this mean to the financial services sector? Los Angeles Councilman Richard Alarcón, who authored the L.A. ordinance, said it was the obligation of every elected official “to ensure that taxpayer dollars are invested wisely – in institutions that are committed to our cities and our communities.”
That should be a proverbial wake-up call to the financial sector. No longer is it enough to produce an annual report for investors and file it with the Securities and Exchange Commission. Although banks, credit unions and publicly traded companies have been accountable to the federal government since the 1930s, this altogether new demand for transparency on a granular level from the general public is new. The passage of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which was intended to address accountability and transparency issues, seems to have merely fanned the flames.
When enough constituents start addressing the same thing, politicians start to listen and take action. Ultimately, the story the public wants to hear right now is “what are financial institutions doing for the communities,” not necessarily just the numbers. It’s time to make communication a priority.
Dodd-Frank was the most substantial overhaul to the financial services industry since the Great Depression, inspired by the banking debacle of 2008 that shook consumer confidence. Two years later, the financial sector is slowly waking up to the increasingly piercing alarm being sounded across the country, witnessed by the 99 Percent and Occupy movements.
It is important to review the Occupy.com website to gauge the temperature of the public’s current perception. In an article on the website from May 24, Travis Waldron writes: “The laws were supported and pushed by activists from the 99 Percent Movement and religious groups who have led campaigns to move money from the nation’s largest banks. The ordinances give preference for city contracts to banks that make the most substantial investments in the local community through small-business loans, home loans, foreclosure prevention and other programs, according to the PICO National Network, a coalition of religious organizations that pushed for the Los Angeles ordinance.”
Need to communicate
Why is this important? One thing that is abundantly clear is that L.A. financial institutions desperately need to communicate – and fast – or lose business and compromise value and growth opportunities. The traditional role that investor relations has played in the past has changed completely from communicating with a well-defined audience of shareholders to becoming proactive about communicating with a broad, well-informed public audience.
The audience is growing.
As the three latest cities, New York, Los Angeles and Portland, approved ordinances requiring financial institutions that receive city deposits to communicate how they are reinvesting in the local community, arguments on both sides are still heated. Although it is anticipated that Los Angeles Mayor Antonio Villaraigosa will sign the Responsible Bank Ordinance into law, New York Mayor Michael Bloomberg is expected to veto that city’s ordinance. The recent legislation is a very hot topic of discussion with clients at our public relations firm, as we manage communications for many banks, credit unions and other financial service institutions throughout the country.
We are already seeing some very progressive businesses take the lead in creating consumer-focused financial reports that share unprecedented access to data. We expect to see this trend of greater engagement and communication grow exponentially during the next round of quarterly and annual financial performance reporting. If banks, credit unions and publicly traded companies do not promptly respond to the call for communicating their social responsibility, the result will be ever-increasing demands for more regulation.
We can all agree on more communication and less regulation, right?
Casey Boggs is president of LT Public Relations, which
specializes in serving clients in the financial services industry. It is based in Portland, Ore.
