Banks and Banking in a Digital Age

Question 1

What is the definition of a Bank?

Answer 1

A bank is a financial establishment that uses money deposited by customers for investment, pays it out when required, makes loans at interest, and exchanges currency.

A bank is a financial intermediary that offers loans and deposits, and payment services.

Question 2

What is a Commercial Bank? What is a Commercial Banks main business?

Answer 2

Commercial banks serve both retail and corporate customers.

They are the key players in most countries’ retail banking markets. Their main business is taking deposits and providing loans, although the largest banks also engage in investment banking, insurance and other financial services.

Commercial banks are usually joint stock companies and may be either publicly listed on the stock exchange or privately owned.

Question 3

What is a Savings Bank? What makes a Savings Bank different?

Answer 3

Savings Banks are similar to commercial banks in terms of their products and services, focusing on personal customers and small businesses.

The main difference is that savings banks are typically owned by their ‘members’ or ‘shareholders’; these are the people who deposit their money in, and borrow from, the bank. This type of ownership is called ‘mutual’ ownership.

Question 4

What is mutual ownership in Banking?

Answer 4

The term “mutual” is used as an umbrella term for several different ownership models. Mutuals are often described as being characterised by the extent to which members have democratic control of the business and share in its profits, and contrasted with ‘investor controlled’ companies.

Question 5

What is a Co-operative Bank?

Answer 5

Co-operative banks are similar to savings banks in that they originally had mutual ownership and offered products and services to personal customers and small businesses. There has been a trend for these types of banks to merge to form larger banks and to become publicly listed companies.

Question 6

What is a Building Society? What is a Building Societies main focus?

Answer 6

Building societies are similar to savings banks and co-operative banks in that they have mutual ownership.

They focus mainly on retail deposit-taking and mortgage lending. Some of the larger building societies have converted from mutual to public ownership and are now banks.

Question 7

What is a Credit Union? Who owns Credit Unions?

Answer 7

Credit unions are non-profit co-operative organisations. They are owned by their members who pool their savings and lend to each other.

Question 8

What is a Finance House? What makes them different from a Bank?

Answer 8

Finance houses are companies who provide loans to individuals and companies.

They are different from banks in that they do not take deposits. The money that they lend to borrowers comes from investors in the company and the money made from loan interest and fees. The largest finance houses are sometimes subsidiaries of the big banks.

Question 9

What is a Challenger Bank?

Answer 9

In addition to the traditional types of banks and financial services organisations that offer banking services, other players in the market include ‘challenger banks’, so called because they are seen to be challenging the bigger, more established banks in terms of driving innovation and attracting customers.

Question 10

What are the five different categories of Challenger Banks?

Answer 10

Established mid-sized Banks (as opposed to the ‘big’ banks), Specialist Banks, Digital only Banks, Neo Banks & Non-Banks

Question 11

What is a established, mid-size Bank?

Answer 11

Established, mid-sized banks offer a full banking service through branches and digital channels.

Question 12

What is a specialist Bank?

Answer 12

Specialist banks specialise in a particular segment of the market, e.g., specialist lending for certain types of business.

These banks typically have a limited physical presence, operating more through contact centres, third parties, and digital channels.

Question 13

What is a digital Bank?

Answer 13

Digital only banks are banks who have a full banking license and can therefore compete on equal terms with traditional banks. Examples are: MYBank; N26; Atom; Starling; and Monzo

Question 14

What is a neo Bank?

Answer 14

Neo banks don’t have their own bank licence; instead they partner with a bank that does have a licence to offer bank-licensed services. Examples are: Yolt; Lunar Way; Chime; and Moven.

Question 15

What is a non-Bank?

Answer 15

Non-banks are players in the market who have no connections to traditional bank licenses, yet meet the conditions necessary to provide financial services in other ways. An example is Monese, specialising in the provision of current accounts.

Question 16

What are the seven different types of Banking?

Answer 16

Retail Banking, Private Banking, Corporate Banking, Wholesale Banking, Investment Banking, Islamic Banking & International Banking,

Question 17

What is Retail Banking?

Answer 17

Retail (or personal) banking is about providing financial services to individuals. It can also include the provision of services to small businesses, depending on how a bank is organised.

Question 18

What is Private Banking?

Answer 18

Private banking is about providing a range of financial services to particularly wealthy clients, including the payment and account facilities offered through retail banking, plus a range of investment-related services. Key components include:

• the tailoring of services to individual client requirements
• anticipation of client needs
• focus on long-term relationships
• personal contact and discretion.

The level of service and products offered increase in accordance with the wealth of the client.

Question 19

What is Wholesale Banking?

Answer 19

Wholesale banking is about the borrowing and lending of money between large institutions on a vast scale, usually between banks or other financial organisations through the interbank market (the market where banks trade with each other), although may include large corporate clients, pension funds and governments.

Question 20

What is Investment Banking?

Answer 20

Investment banking is mainly about: providing advice to and helping companies and governments raise money, or capital, for major investments and projects; managing corporate mergers and acquisitions; buying and selling shares and bonds on behalf of corporate and private (typically high net worth) customers, as well as for the bank; and managing customers’ investments and share portfolios.

Question 21

What is Islamic Banking?

Answer 21

Islamic banking is based on non-interest principles. Islamic Shariah law prohibits the payment of riba, or interest, yet encourages entrepreneurial activity. Therefore banks who want to offer Islamic banking services require to develop products and services that do not charge or pay interest.

A common solution is to offer various profit sharing-related products whereby depositors share in the risk of the bank’s lending. Depositors earn a return instead of receiving interest, and borrowers repay loans based on the profits generated from the project on which the loan is advanced.

Question 22

What is International Banking?

Answer 22

International banking is where banks conduct business across national borders and engage in activities that involve using different currencies. An example is where a bank resident in the UK provides products and services to people or companies resident in other countries. A bank is international if it:

• has branches and/or subsidiaries overseas
• conducts business in a foreign currency irrespective of its location
• has international customers.

Question 23

What is the Evolution of Banking?

Answer 23

Banking is said to have begun as far back as the 18th century BC in ancient Mesopotamia. It subsequently developed and expanded in ancient Greece, Rome and medieval Italy. There is evidence that the Knights Templar, “…a religious order with a theologically inspired hierarchy, mission statement, and code of ethics, but also heavily armed and dedicated to holy war” (Harford, 2017), organised a form of banking in the time of the crusades in the twelfth century.

Question 24

What is the timeline of Banking?

Answer 24

Bank 1.0 represents historical, traditional banking, with bank branches being the main means of access. The world’s first automated teller machine (ATM) was opened at a branch of Barclays in London in 1967.

Bank 2.0 (1980-2007) sees the development of self-service banking, providing access to bank services outside traditional bank working hours through ATMs, home and online banking, contact centres and accelerated in 1991 by the birth of the World Wide Web which enabled public access to the internet.

Bank 3.0 (2007-2017) is about banking when and where we need it, starting with the emergence of the smartphone, and a shift to mobile payments. This period saw the rise of financial technology companies (fintechs) applying their digital innovations to banking services, e.g., peer-to-peer lending platforms. It also saw the emergence of digital only banks, neo banks and non-bank providers of banking services.

Bank 4.0, King (2018, p.319) describes as “…embedded, ubiquitous banking delivered in real-time through the technology layer”. This type of banking is “…dominated by real-time, contextual experiences, frictionless engagement and a smart, AI-based, advice layer”. Bank 4.0 is a “…largely digital omni-channel with zero requirements for physical distribution”.

Question 25

What are causes of competition amongst banks?

Answer 25

• extent to which customers think the products and services offered are useful to them
• how easy the products and services are to access
• flexibility and choice for customers in how they can conduct their banking
• interest rates charged on loans and paid on deposits
• fees charged for arranging loans and providing other services
• a customer’s loyalty to their current bank
• perceived stability and trustworthiness of the bank
• strength of the bank’s brand
• overall customer experience

Question 26

What is a key challenge that all Banks face?

Answer 26

With more and more customers demanding fast, frictionless, real-time banking, a key challenge for traditional banks is the pace of innovation which, although is disrupting the way banks work, also presents many opportunities for them to grow and flourish.

Fintechs continue to lead innovation in the banking industry by sharpening their focus on customer experience.

Question 27

In terms of a strategic choice, what can Banks do to modernise?

Answer 27

• replicate what Fintechs are doing
• respond with equally innovative solutions
• become more symbiotic and less competitive, e.g., by collaborating and working in partnership with Fintechs
• pursue a mix of these strategies that fit the bank’s unique capabilities and market position

Question 28

What are three key activities Banks are undertaking to become more digital and competitive?

Answer 28

• Digitising their core processes
• Reviewing their organisational structures
• Assessing the skills required of their people to enable the bank to grow and flourish in a digital age

Question 29

What is a Open Banking? What is the benefit of it?

Answer 29

An open API (application programming interface) allows one piece of software to interact with another piece of software. This is the main technology that facilitates ‘open banking’, whereby customers can give their banks permission to make certain of their financial information accessible to other approved organisations in a standard and secure way.

This means that consumers will have more choice and control over their money and financial information, enabling them to have a single view of all their accounts with different providers in the one place, that is, through the one ‘interface’.

A key benefit for banks is that it enables them to provide a better service, improve customer engagement, and increase revenue from new channels. An example is the Experian Connect API which enables a customer to see their credit score in real-time through their bank account.

Question 30

Why do Banks use advanced analytics?

Answer 30

Banks can use advanced analytics of the information they have gathered through basic reporting and data collection to predict customer behaviour and preferences, improve risk assessment, and shape business decisions.

Banks can use analytics, for example, to offer customised products and services to customers, and identify and prevent fraud which can result in improved customer satisfaction, loyalty and retention.

Question 31

What are the four different components of analytical solutions for Banks?

Answer 31

1. Reporting: turns raw data into information that shows what is happening.
2. Descriptive analytics: is used to process and summarise the information gathered in the reporting and identify patterns and trends.
3. Predictive analytics: uses these patterns and histories to determine what could happen in the future – how customers might act for example, and what services will be profitable.
4. Prescriptive analytics: uses the results of descriptive and predictive analytics to determine what is likely to happen and why, and how best the bank can take advantage of future opportunities.

Question 32

What is AI?

Answer 32

Artificial intelligence (AI) can be described as:

• a branch of computer science dealing with the simulation of intelligent behaviour in computers
• the capability of a machine to imitate intelligent human behaviour
• a computer system able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.

Question 33

What is ML?

Answer 33

Machine learning is a sub-set of AI. It is based on the idea that systems can learn from data, identify patterns, and make decisions with minimal human intervention. In other words, it’s about the ability of the ‘machine’ to modify itself when exposed to new data and does not require human intervention to make certain changes.

Question 34

What is a conversational interface? What are the two types of conversational interfaces?

Answer 34

A conversational interface enables us to tell a computer what to do.

There are two types of conversational interface:

1. voice assistant that allows us to talk
2. chatbots that allow us to type.

Question 35

What is Cloud Computing? How can Cloud Computing help Banks?

Answer 35

Cloud computing is the delivery of computing services, for example, servers, storage, databases, networking, software, analytics and intelligence, over the internet (the ‘cloud’).

Cloud-based systems can help banks automate workflows, deliver new services faster, boost efficiency and deliver savings.

Question 36

What is Mobility & Wearables? How are these used in Banking?

Answer 36

Wearable technologies include devices like smart watches and fitness trackers. Their applications in banking include:

• using biometrics to identify a customer
• collecting data about customers to better understand their financial needs and provide information to help them meet those needs with a view to providing a better customer experience.

Question 37

What is RPA? How can Banks use RPA?

Answer 37

Robotics Process Automation (RPA) is the use of computer software ‘robots’ to handle repetitive, rule-based digital tasks. It involves interacting with applications and information sources the same way as humans do. Innovations in RPA mean that robots can handle more complex functions and, with machine learning, the robots are also learning to make some of the decisions.

Banks can use RPA to automate some of their more mundane, repetitive tasks so that their people can focus more on serving the customer and adding value to their experience through the ‘human touch’.

Question 38

What is IoT? How can Banks use IoT?

Answer 38

The IoT encompasses everything that is connected to the internet, specifically devices that ‘talk’ to each other. The IoT is made up of devices, for example, smart phones and wearables, that are connected together to produce data. Therefore, it’s all about networks, devices and data.

Banks can use IoT technology to collect information about customers from the devices they use and, based on the data collected, can offer them services that the data suggests best meet their needs. Although using IoT technology has its benefits, there are some associated risks.

Question 39

What is Blockchain? What will this do to a Bank?

Answer 39

A blockchain is a digital record of transactions whereby individual records, called ‘blocks’, are linked together in a ‘chain’. Blockchains are used for recording transactions made with cryptocurrencies, for example, Bitcoin.

Blockchains are a form of distributed technology, that is, a database that is spread across a network of computers, where each computer replicates and saves an identical copy of the ledger, with each participating computer updating itself independently.

Blockchain can potentially be used to allow individuals to pay each other without a central clearing point. It could therefore, for example, make trading in stock more efficient by facilitating almost instant settlement of transactions, instead of needing three or more days for each transaction to ‘clear’, that is, complete.

If fully adopted, it is thought that blockchain technology will enable banks and other payment providers to process payments more quickly and more accurately while reducing transaction costs. There are other players in the market though. Facebook, for example, announced in June 2019, that it plans to launch its own digital currency, Libra, in 2020, thus allowing billions of users to make financial transactions across the globe in a move that is thought to have potential to shake up the world’s banking system.

Question 40

What is Quantum Computing? How could Banks use this?

Answer 40

A quantum computer can manipulate many combinations of data at the same time, leading to more efficient crunching of data more quickly than a classical computer.

For banks, this could mean more accurate and quicker analysis of data with a view to minimising risk and improving customer service and developing products and services that make it easier to move money, add value and access credit. Quantum computing also has the potential to keep confidential customer information safe through stronger encryption mechanisms.

Question 41

What is AR and VR? How are banks using this?

Answer 41

Augmented Reality (AR) and Virtual Reality (VR)

While augmented reality adds to reality, projecting information on top of what we’re already seeing, virtual reality replaces reality, taking us somewhere else. This technology is being used, for example, to showcase a bank’s digital banking solutions, and create tools to help customers manage their finances.

Question 42

What is the AI & Distributed Ledger Technology?

Answer 42

• Base level of pyramid - APIs etc. - Where the change is coming, as these change, more capabilities then added at middle and top layer
• AI, machine learning and distributed ledgers = Most useful and powerful technologies for FS
• Lower risk, lower cost, economic growth
• Risks = ethical consequences of people who are excluded from the system
• Question of whose data it is - How to handle the data, making sure it is behaving properly
• Risk = significant job reduction if processes become automated

Question 43

What are the three core functions that Banks perform for us?

Answer 43

1. Banks look after our money
2. Banks lend us money
3. Banks help us pay for things.

Question 44

What does the concept of financial intermediation recognise?

Answer 44

The concept of intermediation recognises that there are two types of ‘player’ in the financial system:

• Lenders
• Borrowers

Question 45

What are the four main ways in which Lenders & Borrowers interact?

Answer 45

1. Dealing with each other directly (financial disintermediation)
2. Dealing through the financial markets
3. Dealing through an intermediary (financial intermediation)
4. Dealing between intermediaries through the financial markets, for example, where banks borrow from and lend to each other.

Question 46

How do Banks bridge the gap between depositors and borrowers?

Answer 46

Banks bridge the gap between depositors (lenders to the bank) and borrowers (those to whom the bank lends money) by performing what is called a ‘transformation’ function.

Question 47

What are the three types of transformation?

Answer 47

• Size transformation happens when banks collect small-size deposits from savers and repackage them into larger-size loans.
• Maturity transformation happens when banks convert deposits that can be withdrawn on demand into longer-term loans.
• Risk transformation happens when banks minimise the risk of individual loans by diversifying their investments, pooling risks, screening and monitoring borrowers, and holding funds in reserve as a ‘buffer’ against unexpected losses.

Question 48

What is financial disintermediation?

Answer 48

The term disintermediation refers to the process of cutting out the financial intermediary in a transaction. It may allow a consumer to buy directly from a wholesaler rather than through an intermediary such as a retailer, or enable a business to order directly from a manufacturer rather than from a distributor.

Question 49

What are the advantages of financial disintermediation?

Answer 49

• Potential for greater returns for investors due to dealing direct in the markets.
• Reduced costs due to not having the costs associated with dealing through an intermediary – a stockbroker for example.
• Provides alternative source of finance for those who may have difficulty in obtaining credit from a financial intermediary, e.g., small businesses and start-up entrepreneurs.
• Can benefit the economy by providing more diverse and cost-efficient sources of credit for borrowers and greater returns for investors who can provide alternative sources of funding to meet borrowers’ needs.

Question 50

What are the disadvantages of financial disintermediation?

Answer 50

• Investing money directly in the market needs skill, expertise and resources; the process can be time-consuming, and the investor is making the decision on their own, without the help of an intermediary so there is an increased risk of making an inappropriate choice.
• Loans could be made to more risky borrowers due to lack of information about the borrower and expertise in robust risk assessment; a financial intermediary on the other hand has expertise in assessing risk and can more easily absorb it.
• Non-bank peer-to-peer lenders, for example, are not currently regulated to the same degree as banks so it could be riskier for those dealing direct with each other due to lack of protection from regulation.
• Removing the services of the intermediary, effectively the retailer, could lead to job losses which could have an adverse effect on the economy. It could also lead to the ‘producer’ of the service increasing prices to cover the cost of direct distribution to customers instead of selling their products to retailers. For example, think about what it can cost to buy produce direct from farmers’ markets as opposed to a local supermarket

Question 51

What are the three main ways Commercial Banks make money?

Answer 51

As a business, a key objective for a bank and other financial services organisations is to be profitable and maximise returns for its shareholders (owners). Commercial banks make money in three main ways:

• lending some of the money deposited by savers to borrowers and charging these borrowers interest on the sums loaned (the bank makes money by lending at rates higher than the cost of the money they lend)
• charging fees for products and services
• investing the money deposited by savers.

Question 52

How do Banks remain profitable?

Answer 52

The more banks lend, the more profits they have the potential to make. The business of banking is a balancing act between making a profit from lending and investments and ensuring the bank has enough cash in reserve to repay those who have deposited their money with them, which a bank uses to fund the lending and investments, either on demand, or on expiry of an agreed period.

In a bank’s balance sheet, the money a bank lends to its customers and other banks appears as assets because this money is a source of income and profits. The money deposited by customers appears as liabilities because this money is repayable to customers, either immediately on demand or on expiry of a notice period.

Question 53

What is liquidity in Banking?

Answer 53

In accounting terms, liquidity is a measure of the ability of a debtor to pay their debts as they fall due. This means that a bank, which has effectively ‘borrowed’ the money its customers have deposited, must keep enough cash available to repay this money to customers who want to withdraw it. Yet, as a business, the bank needs to make a profit and if it were to keep enough cash available to meet all likely withdrawals, it wouldn’t be able to invest it to make a profit.

Banks are therefore pulled in opposite directions – on the one hand towards liquidity (holding enough cash on hand to meet the immediate demands of customers), and on the other, towards profitability.

Question 54

What is Credit Creation?

Answer 54

In a fully functioning financial system, banks play a major role in supporting the availability of credit. (Credit basically means getting the purchasing power now, from a loan for example, and promising to pay at some time in the future.) This in turn supports and stimulates economic activity to the benefit of society as a whole.

Banks support the availability of credit by acting as trusted intermediaries; they attract financial resources that are temporarily unused in the form of deposits and then redistribute them in the form of loans to borrowers who will use them to create productive resources.

The benefits to the wider economy of such a system are multiplied because of what economists call the ‘credit creation multiplier’ effect.

Question 55

What is the Credit Creation multiplier effect?

Answer 55

Credit creation arises because of the impact of what is often referred to as the ‘fractional reserve banking system’.

Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties.

A bank attracts deposits from thousands of individual customers by offering to pay them a rate of credit interest. The bank will consolidate these deposits, knowing that it is highly unlikely that all these individual savers or depositors will require their money to be returned to them at the same time. The bank will thus retain in its reserves a sum of money (a proportion of its total deposits, typically 10%) that it believes will be sufficient to ensure that it can repay those customers that it anticipates will want their money back, and it will lend the rest to borrowers.

The bank will charge borrowers a higher rate of interest sufficient to both cover the cost of deposit interest required to attract deposits in the first place, plus all its operating costs. The difference between what the bank pays to depositors and the higher rate of interest it charges to borrowers is known as the net interest margin (NIM). This margin should be enough to both generate enough surplus income to provide the bank’s shareholders with a profit, and cover the cost of any bad debts that the bank may incur from its lending activities.

The borrowers in the above scenario will use the loan they receive to invest in their own business projects or to buy goods and services. It is highly likely that the sellers of those goods and services will themselves ultimately deposit the funds they receive back into the banking system, meaning that the original deposit can in effect be recycled. This will increase the total money supply within the economy and if managed correctly, society as a whole should also benefit.

Question 56

What is a Shareholder? What is a Stakeholder?

Answer 56

One of a bank’s key objectives is to make a profit for its shareholders, there are other stakeholders to consider. Stakeholders are individuals or groups that depend on the bank to help them achieve their own goals, and on whom the bank depends.

Question 57

What are the three main Stakeholders for a Bank?

Answer 57

Apart from shareholders, who are interested in returns on their investment, other stakeholders include:

Customers: interested in choice, convenience, and great products and services that meet their needs at a low cost.

Employees: interested in job satisfaction, learning and development, career progression, professional standards, and pay and rewards.

The government and regulators: interested in a well-functioning banking system which leads to economic growth and stability.

Question 58

In accordance to Johnson, identify five types of stakeholders.

Answer 58

These are:

1. Economic stakeholders
2. Social/political stakeholders
3. Technological stakeholders
4. Community stakeholders
5. Internal stakeholders

Question 59

What is the definition of a Strategy?

Answer 59

Strategy as “…the long-term direction of an organisation”.

Strategy is driven by purpose. It is by listening to and being responsive to the wishes of its stakeholders that a bank, or any organisation, can define its purpose.

Question 60

What are the four ways in which organisations define their purpose?

Answer 60

There are four ways in which organisations typically define their purpose:

• A mission statement aims to provide employees and external stakeholders with clarity about what the organisation is fundamentally there to do.
• A vision statement is about the future an organisation seeks to create; it expresses an aspiration designed to enthuse, gain commitment and stretch performance.
• Statements of corporate values communicate the core principles that guide an organisation’s strategy and define how it should operate.
• Objectives are statements of the specific outcomes that are to be achieved.

Question 61

What are the three pillars of sustainability?

Answer 61

Sustainability is essentially about meeting the needs of the present without compromising the ability of future generations to meet their needs.

The concept of sustainability comprises three pillars:

1. economic (profits)
2. social (people)
3. environmental (planet).

Question 62

What is a Banks ‘embedded’ approach?

Answer 62

An embedded approach: banks’ position in society and the wider environment

Banks, and other financial organisations and businesses, do not exist in isolation. They are part of the financial system which both serves and relies on the economy, which itself serves society and is embedded in the environment.

This ‘embedded’ approach means that when taking business decisions, banks, and other organisations, consider not just the financial implications of the decision, but also the implications for the wider economy, society and the environment. This mind-set can influence every area of the business, from operations, staff recruitment and development, and investment strategy, to product design and pricing, risk management, marketing and financial management (Chartered Banker Institute, 2019).

Question 63

What else can a Banks performance on social responsibility influence?

Answer 63

• its competitive advantage
• its reputation
• its ability to attract and retain workers or members, customers, clients or users
• employees’ morale, commitment and productivity
• views of investors, owners, donors, sponsors and the financial community
• its relationships with companies, governments, the media, suppliers, peers, customers and the community in which it operates.

Question 64

What are the 17 UN Sustainable Development Goals (SDGs)?

Answer 64

1. No poverty
2. Zero hunger
3. Good health and well-being
4. Quality education
5. Gender equality
6. Clean water and sanitation
7. Affordable and clean energy
8. Decent work and economic growth
9. Industry, innovation and infrastructure
10. Reduced inequalities
11. Sustainable cities and communities
12. Responsible consumption and production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice and strong institutions
17. Partnership for the goals

Question 65

What is the UN Principles for Responsible Banking?

Answer 65

The Principles are designed specifically for banks.

Banks play a key role in society. As financial intermediaries, it is our purpose to help develop sustainable economies and to empower people to build better futures. Banking is based on the trust our customers and wider society put in us to serve their best interests and to act responsibly. Our success is intrinsically dependent on the long-term prosperity of the society we serve. Only in an inclusive society that uses its natural resources in a sustainable manner can our clients and customers and, in turn, our businesses thrive. We therefore want to take a leadership role and use our products, services and relationships to support and accelerate the fundamental changes in our economies and lifestyles necessary to achieve shared prosperity for both current and future generations.

Question 66

What are the six Principles of Responsible Banking?

Answer 66

Principle 1: Alignment
We will align our business strategy to be consistent with and contribute to individuals’ needs and society’s goals, as expressed in the Sustainable Development Goals, the Paris Climate Agreement and relevant national and regional frameworks.

Principle 2: Impact & Target Setting
We will continuously increase our positive impacts while reducing the negative impacts on, and managing the risks to, people and environment resulting from our activities, products and services. To this end, we will set and publish targets where we can have the most significant impacts.

Principle 3: Clients & Customers
We will work responsibly with our clients and our customers to encourage sustainable practices and enable economic activities that create shared prosperity for current and future generations.

Principle 4: Stakeholders
We will proactively and responsibly consult, engage and partner with relevant stakeholders to achieve society’s goals.

Principle 5: Governance & Culture
We will implement our commitment to these Principles through effective governance and a culture of responsible banking.

Principle 6: Transparency & Accountability
We will periodically review our individual and collective implementation of these Principles and be transparent about and accountable for our positive and negative impacts and our contribution to society’s goals.

Question 67

What are the four objectives of the UN Principles for Responsible Banking?

Answer 67

• Align banks with society’s goals as expressed in the Sustainable Development Goals (SDGs) and the Paris Climate Agreement
• Set the global benchmark for what it means to be a responsible bank and provide actionable guidance for how to achieve this
• Drive ambition and challenge banks to continuously increase their contribution towards a sustainable future
• Help banks seize the opportunities of the changing economy and society of the 21st century by creating value for both society and shareholders, and help banks build trust with investors, customers, employees and society.