Should bank regulators link capital requirements to diversity?

Rocky road: The digital-only BankMobile, founded in 2015, has yet to turn a profit for its community bank parent company, Customers Bancorp in Wyomissing, Pa. But a new plan to spin off BankMobile is the best way to foster its growth and future profitability, says Luvleen Sidhu, who oversees the unit as president. When Customers reached $10 billion in assets, regulatory restrictions on interchange fee revenue kicked in, and that works against BankMobile. A previous plan to sell the millennial-focused unit to the smaller Flagship Community Bank fell through, because Flagship was unable to raise the $175 million needed to close the deal. But a more complicated deal structured as a spinoff will make BankMobile part of Flagship anyway. It is set to close by June 2018.

Relying on regulators?: If banks don’t realize what’s good for them, then someone needs to show them, and that someone should be a regulator. Simon Samuels of Veritum Partners makes this argument in a Financial Times op-ed, where he says that the notion about diversity being good for the bottom line has become an overused soundbite, and, obviously, that fact has hardly incentivized banks to change. “If there is one thing banks defer to even more than the profit motive, it is their regulator,” Samuels writes. “Regulators should reward or penalize gender diversity at banks through the amount of capital they require a bank to hold.” His reasoning is that diversity lowers risk: “With capital there to cushion the bank against losses, it follows that a bank that lowers its risk of losses can run with less capital.” Though regulators might feel like this is about driving a social agenda, really it’s just about recognizing that gender-diverse banks are more likely to avoid becoming another Lehman Brothers, says Samuels, who was in equity research at Barclays before becoming a consultant.

The two holdouts: Without naming names, Virgin Money Chief Executive Jayne-Anne Gadhia has expressed disappointment about two banks that have not signed the 10-point Women in Finance charter she designed (at least not yet). This article concludes that she is referring to Goldman Sachs and JPMorgan Chase. In signing the charter, companies commit to linking executive pay to goals to improve gender equality internally. Gadhia dismissed an excuse from one company that it couldn’t sign up because it was a global business. “Business has a responsibility to society and the organizations that have signed up appear to adhere to that view,” she said. Those that have not signed are “more insular” and “driven by their own profit motive,” she said. Like Samuels, Gadhia suggested that banks should be required to hold more capital if they lack diversity, though she tied it to boardroom diversity specifically. Gadhia also said companies should be required to include reports on diversity in their annual reports in the same way that they update investors on environmental issues. Separately, her accusations about a sexist culture at Royal Bank of Scotland – where she used to work and where a senior woman once complained to her about being expected to sleep with her boss – also is making waves. RBS called Gadhia’s remarks “shocking” and invited its staff to report inappropriate behavior, promising to investigate.

Chris Ratcliffe/Bloomberg

Real wonder women: A strong feminine presence crosses many business sectors in Israel, but in the financial world, it is a dominant phenomenon, says Rakefet Russak-Aminoach, president and CEO of Leumi Group, one of Israel's largest banking institutions. Three of Israel’s big banks are being led by women; and the governor of the Bank of Israel, the supervisor of banks and the director of the capital markets, insurance and savings authority are all women. Russak-Aminoach likens Israeli women to Wonder Woman. She saw the Hollywood hit, starring Israeli actress Gal Gadot, and it was immediately clear to her why so many Israeli women identify with her. “As a fresh, disruptive, ambitious and accomplished character, Wonder Woman captures the essence of Israeli femininity. But unlike the protagonist in the movie, women in Israel do not need superpowers to succeed and thrive in our personal or professional lives,” Russak-Aminoach writes. “The fact is that real Israeli women are playing a sizable role in shaping our society.”

Advice on how to have a successful career: You might need to call on different strategies to help you advance at each stage of your career. That has been the experience of Linda Verba, who is soon to retire as head of service strategy for TD Bank. In this very short video, she shares three ‘R’ words that describe the strategies that worked for her, at the beginning, in the middle and late in her career.

Podcast

It’s a nonstarter: While sexual harassment allegations aren’t new or surprising, the recent wave of bombshells is happening at companies that have been formed in the last 10 years, which is disappointing, says Amy Nauiokas, co-founder of venture capital and advisory firm Anthemis Group. For years there’s been debate about whether Wall Street culture could change; what’s perhaps underappreciated is the progress that has been made by such firms, which are hundreds of years old and created by and for white men. It’s unacceptable that startups, which lack that kind of legacy, are breeding such bad behavior, she says. “It’s not impossible to change if you’re starting from the beginning.”

Role call

Bank of the West has promoted Mary Borg to head of retail branch network and strategy. In this role, she is responsible for overseeing its 500 branches, the national sales strategy team and the customer experience. She reports to Ryan Bailey, the head of the retail banking group. Borg, who has been with the bank for 18 years, previously served as the Southern California division executive.

Donna Kinnaird, former chief operating officer of Reinsurance Group of America, has joined New York Life's board of directors. 

In case you missed it
 
Big changes coming in small business: Small-business credit is poised for a shakeout. In the coming months, partnerships between banks and fintechs will increase, and credit models will be refined, said Alenka Grealish, a senior analyst at Celent. She cited three reasons: 1) Banks have the strongest gravitational pull on small businesses; fintechs may be the pacesetters in user experience and underwriting analytics, but the majority of small businesses have not sought financing from them; 2) Credit portfolios and models need adjustment, and banks that partner with fintechs or build their own platforms will be able to take advantage of the same digital agility that their online competitors have; 3) Moral hazard remains in many origination models (i.e., separation of risk-taking from risk exposure, such as when cash advance providers rely on third-party brokers or funding advisers to acquire borrowers) and revenue and liquidity cushions are needed.

Beyond banking

Bias versus behavior: Do men and women act differently in the workplace? Do these differences help explain why women are less likely to get to the C-suite than men? A study at one company where the senior leadership is mostly men used sociometric badges to track the workplace behavior of 100 employees across ranks. The results showed no detectable differences in terms of how male and female employees allocated their time, how much face time they got with senior leadership or how often they were in contact with mentors. The study, written up in Harvard Business Review, theorizes that if men and women are not behaving differently, then the reason that men are more successful in reaching the higher ranks must be due at least in part to bias – which is essentially when two groups of people act identically but are treated differently. Should companies continue with programs that focus on improving women’s leadership skills? Sure, but progress depends more on programs addressing bias in the workplace.

More bonding time: IBM increased paid time off for birth moms to 20 weeks, from 14 weeks. It doubled paid parental leave for fathers, partners, and adoptive parents, to 12 weeks. And employees can opt to take the time off anytime during the year after birth. IBM made the announcement in this blog post.

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Tina Snieder and Bonnie McGeer contributed to this report.