New report: Towards a better model for public development banks

Today the NGO Network Eurodad published the report “Public Development Banks: Towards a better model” which proposes a blueprint for successful public development banks at national, regional and global level. With this blogpost, we highlight some of the issues raised in the report, and how they are relevant for the main institution we are monitoring: the European Investment Bank (EIB).

In May 2015, Counter Balance and Re: Common, in the report “Reclaiming Public Banks: A thought provoking exercise” similarly looked into the role of public banks as powerful tools to finance projects of public interest and how public finance needs to be transformed for this to happen. Focusing more specifically on the EIB, our report concluded that the EIB’s business model makes it impossible for the bank to realise its development potential. Indeed, the bank is currently instrumental to the financialisation of the European economy and it lacks the relevant transparency and accountability structures to guarantee good governance.

While keeping in mind the major differences between existing Public Development Banks and the very specific nature of the EU legal framework under which the EIB operates, the Eurodad report contains numerous relevant lessons to be learnt for the EIB. Here are some:

• Prioritising financial returns risks hindering development outcomes – for example, if a bank were to avoid investing in areas with high development impact because profit levels are deemed too low, or risks too high. In the case of the EIB, this challenge has been raised especially in the context of the Investment Plan for Europe, under which the bank has prioritized projects in best performing European economies rather than focusing on lower-income regions where investments may have been more risky despite entailing potentially higher impact on employment for instance.

• Multilateral banks should avoid using commercial financial intermediaries, such as large commercial banks or private equity funds, as they pose significant challenges to transparency and accountability. This has been one of our long standing demands, from the “Hit and Run development” report in 2010 to the “Dark Side of EIB Funds” in 2016, and clearly an issue on which the EIB has not made significant progress to date.

• Good governance. Public development banks need representative and democratic governance structures and open, inclusive and accountable decision-making processes. Among significant concerns in this regard, at the EIB level stand the following:
  • There is progress to be made in terms of insulation from political pressure. For instance, a recent report from Transparency International EU showed the limits of safeguards against conflicts of interest in the governing bodies of the bank. One striking example being that EIB Vice-Presidents are in charge of operations in their home countries.
  • Little inclusion of civil society groups, including trade unions and bank employee unions, in the decision-making of the institution.

As a coalition of organisations pushing for a fundamental change in the way European public banks operate, we believe that more debate among civil society and decision-makers is needed. In order to reclaim public banks in the public interest and make them a key driver of the transition towards socially and environmentally sustainable and equitable societies, we need to define together the key principles for a new business model. From an EU perspective, it is all the more important to have that discussion now that the EIB is stepping up its activities outside of Europe under its “External Lending Mandate” and that the European Commission is setting-up a new “External Fund for Sustainable Development” in which development banks will play a key implementing role.