Ethical Banking

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How would you feel if your file for a bank loan would be rejected because it was not ethical? Yes, it is possible and it is already happening. Ethical banking is a social, civic, alternative type of bank. These kinds of banks help people have ethical savings and ethical investments. It is part of a larger, social movement called “Banktivism”, which draws attention towards social and environmental responsibility in the financial sector.

Firstly, we must understand what “Banktivism” is and how we can define it.  Banktivism is a sort of activism that refers to banks and bankers. Since the passing of the Community Reinvestment Act and the recession that started in 2008, some of the banks considered the idea of using their influence in order to make a change in the communities they serve. They support activities that aim to change the social, political, economical and environmental status for the better.

Banktivists are bankers at all levels. They are from bank directors to support personnel and they all have the same concerns and purposes that can help the community. They are not volunteers or supporters. They want to create real outcomes and they take this duty seriously. Banktivists make an effort to produce benefits for local residents, small businesses and nonprofit communites.

Coming back to ethical banking, there is no official record of the date or the period when this concept appeared. Since their appearance, banks were seen only as financial institutions that should concern only about financial issues. Morality was not a part of their business mainly because they were not associated with the actions that a person or a business would do with that money. Or they did not want to interfere with someone else’s activities. Even if there isn’t a certain date in which the change begun, slowly but surely, banks over the world started to realize that they have a really useful power in their hands. The power of money. By changing the policy of lending them, many things have turned out positive.

In the mid-1990, the Cooperative Bank organized a survey. 6,000 people were asked about their opinion on ethical banking. 84% responded that it would be a good idea.

How does a bank decide upon what is ethical and what is not? They need to be very objective and maybe they need the help of Mill, Kant and Aristotle. John Stuart Mill stated an utilitarian ethical theory. He said that an action’s moral status is dependent to the extent to which if it contributes to happiness. So in Mill’s perspective a bank would be ethical if it would take care of people’s happiness. If one bank succeeds to produce the greatest amount of happiness for the greatest amount of people, then it is considered ethical. An example for this theory would be the case of a bank that lends money to a business that treats employees with respect and very fair and it is also environmental concerned.

Another viewpoint comes from Immanuel Kant who considers that morality concerns intentions and not outcomes. A person is moral if she/he acted with good will and she/he had good intentions. Based on Kant’s perspective, banks should not be judges as being moral or immoral based on the outcome of their lending.

Last but not least, Aristotle’s theory. In his vision, law, equality and justice are very important in order to determine if something is ethical or not. Whether an action is according to the law or not, is an issue of morality for Aristotle. Usually banks do business in accordance to the law. The problem is that law differs from one country to another. This leads to the conclusion that a bank could be seen as being ethical even if it lands money to a business that is in accordance to the law but is harmful for the environment. We still have a second statement of Aristotle that somehow changes the light on the first one: “what is just in transactions is something equitable, and what is unjust is something inequitable”. This means that an ethical bank should keep an eye and should take action in face of unjust/inequitable behavior.

The key to ethical banking is deciding upon the set of principles and sticking to them no matter what. Usually banks are profit driven entities. This is why they try to avoid people that will cost them money. And that is the reason why many people with bad credit history and incomes, or people that live in lower-income neighborhoods are seen with reluctant eyes when they try to borrow money from a bank.

This discriminatory issue leads to the situation in which there are less opportunities for lower-income persons to make a progress, to improve their lives and their communities. As a result, this kind of behavior used by banks keeps a cycle of poverty in the communities that they serve. The development of poor communities would positively improve the situation of that country too.

This is one of the main facts that ethical banks got right and tries to improve. This, and many others. They are looking for sustainable practices, environmental friendly; they are screening the clients in order to avoid unethical and immoral situations; they are also practices what they are preaches, so they do respect.

While trying to do all this good things for others, ethical banks still make profit. They do have to take care of their bottom line otherwise they would not be able to help the community anymore. That would bring up a lose-lose situation.

Ethical banks do influence communities by helping them and by standing up as an example. At the same time communities influences these kinds of banks. The fact that the banks can decide for themselves what kind of policy to follow, it is often the contribution of a community to that decision. Their needs, their problems, their potential are taken into account. Also cultural aspects can drive the discussion of morality and policy in different directions.

All in all, ethical banks are a great way of showing the humans inside us. Being a civic and socially responsible person and having around banktivists and banks that look after you can only bring positive results. Looking forward for the first ethical bank in Romania.

References:

  1. “Ethical Banking”, Wikipedia, accessed on April 8, 2015, http://en.wikipedia.org/wiki/Ethical_banking
  2. “What is a Banktivist?”, banktivist.com, accessed on April 8, 2015, http://banktivist.com/
  3. “Ethical alternatives to the Co-operative Bank”, The Guardian, accessed on April 8, 2005, http://www.theguardian.com/money/2013/oct/23/ethical-alternatives-co-operative-bank
  4. “Ethical Banks”, Move your money, accessed on April 8, 2015, http://moveyourmoney.org.uk/institution-types/ethical-banks/
  5. “What is Ethical Banking?”, Financial Web, accessed on April 8.2015, http://www.finweb.com/banking-credit/what-is-ethical-banking.html#axzz3WjxmRWfh

Photo Source: http://uswitch-wp-cms-assets.s3-website-eu-west-1.amazonaws.com/wp-content/uploads/2014/06/iStock_000038569644_Medium-copy1.jpg, accessed on April 8, 2015

 Roxana Miron

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