BANKS: HOW INTERESTING CAN THEY BE?
In August 2015, as I sat on the crest
of a cli; in Amorgos, Greece, I experienced a eureka moment! I had just
;nished the frenzied reading of a case
study by MIT’s Dr. Katrin Käufer on
Triodos, the responsible Dutch bank .
I came to understand the incredible
power of a bank as it multiplies its
clients’ deposits by 10, and with this
money, ;nances companies of their
My Bank: A Love-Hate
Before becoming an entrepreneur,
;nance and the entire banking
universe bored me to tears. When I
founded my ;rst tech start-up over 20
years ago, my relationship with banks
became somewhat confrontational.
Entrepreneurs and bankers are worlds
apart! ;e ;rst envisions the future
and takes risks, while the other scrutinizes the past and averts risk!
With time, my sentiment towards the
bank evolved. I became interested in
understanding its history, mechanics,
role, universe, regulatory changes, etc.
And surprise! I developed a fascination,
which morphed into genuine interest.
Can We Live Without Banks?
“Banking is necessary; banks are
not." stated Bill Gates in 1992.
But what DOES a bank actually do?
Well, I shall put on my professor hat
for a moment. No pop quiz, I promise!
;e bank’s primary role, the one most
understood, is to act as a middleman
between two groups with con;icting
objectives: savers and borrowers.
Savers, on the one hand:
• Do not want to take risks
• Often possess limited amounts for
• Wish to withdraw their savings at
Borrowers on the other:
• Initiate more or less risky projects
• Need somewhat substantial sums
of money for a rather long period
;e bank’s 2 primary functions are
1) to take and manage risk and
2) to ensure monetary liquidity.
Its 3rd function, much less understood, is to create money. As a bank
is required to keep 10% of your
deposits, each of your dollars is
multiplied by 10 before being
deployed in credits (loans).
Is this even possible, you ask? Well,
yes! ;is is how it works! Sir Mervyn
King, Governor of the Bank of
England from 2001 to 2013,
explains: "When banks grant loans
to their clients, they create money by
crediting their clients’ accounts."
In a nutshell: a bank creates money
every time it grants a new loan. ;is
concept may be di;cult to grasp for
the layman, but banking system
experts understand it well. In 2014,
the Bank of England released Money
Creation in the Modern Economy ,
a report which describes this process.
FACT: in our economy, 97% of the
money in circulation is digital and
was created by the banks!
;e remaining 3% is produced by
the State in notes and coins.
The incredible power of a
bank in our hands
As I walked my way down to the
coastal village of Katapola (Greece,
still), I started dreaming about the
... A responsible bank, which
allocates 100% of its loans to
;nance projects with a positive social
and environmental impact,
... A mobile and digital bank, which
uses new technologies to cut unnecessary costs and create a collaborative environment,
... A transparent bank, which
assumes its role as an economic
player central to a participatory
My decision was made: my next
start-up would be to create a
responsible bank in Canada!
Paul Allard, CEO and Co-founder of
Impak Finance Inc.
MARKET INSIGHTS PAUL ALLARD, CEO AND CO-FOUNDER OF IMPAK FINANCE INC.
As I sat on the crest of a cliff in Amorgos, Greece, I experienced a eureka moment!