Can we trust our banks?

If you work in the banking industry, you’re really taking it on the chin at the moment. In the wake of a deep worldwide economic recession, people are blaming bankers for everything – in angry accusations on the radio, damning Letters To The Editor, demands for pay cuts and bonus freezes. A deluge of condemnation, followed closely by politicians and media alike.

Over it all, the question hangs: how were certain financial institutions allowed to get away with such reckless and ultimately catastrophic speculation?

One simple answer is a lack of ethical guidelines. Money-making is informed risk-taking, and when ethics are lifted out, it can so easily become gambling with people’s lives without their consent or knowledge.

Customers left in the dark are a blank check for banks to take any risk they deem necessary to reap profits, based on their own ethical criteria which may or may not coincide with ours – not that we would have any idea, of course. Blind trust is risky. Would you trust the former chairman of the NASDAQ? If so, you’d have become yet another victim of the biggest investment fraud ever committed by an individual, representing $65 billion in fictitious stock. Meanwhile, prominent financier Sir Robert Allen Stanford (would you trust a Sir? Me too) is under investigation for an $8 billion investment scheme fraud. All this, in a recession.

And there’s a second danger: that banks may invest in businesses we find morally objectionable. Guns. Tobacco. Casinos. These pay out spectacularly well, so chasing profits is a slippery slope that even the most pious of banks can tumble down. The Vatican Bank, established “for works of religion or charity”, has also been led astray in the search for profits, as when it took the advice of Michele Sindona and used money linked to heroin manufacture.

So you want your savings to be clean and green and be put to good use? You’ll want the SRI route  – Socially Responsible Investing.

It’s not a new thing (John Wesley was a supporter) but it’s never been bigger. You put your savings into an SRI-guided financial body such as a credit union, and not only will it promise to avoid investing in ethically dubious activities, it also puts your money towards business with a proven human rights and environmental record, and to influence the way businesses do business.

A powerful example is how investors successfully pushed pharmaceutical companies to drop their legal protest against a South African law lowering the price of AIDS drugs in 2001. SRI banking uses your money to make a difference – but it also tells you about it. That’s the guiding principle. It’s capitalism sharpened.

But there’s a downside. Your interest rate returns will take a hit – expect a few percentage points lower than a standard current or savings account. If you prefer giving money directly to worthy causes (i.e. Razoo) you might have less to donate at the end of the year through an SRI. Interest excepting, this will probably look like business as usual for you: expect cards, checkbooks, online statements and all the trappings of a financial giant.

The biggest difference? The one thing money can’t buy – trust.

Useful Links:

“Going Green: Ethical Banking” at FinanceDaily.

“Socially Responsible Investing Facts” from the Social Investment Forum.

Social Funds: a major SRI advice site.

Image: cmpalmer