Today’s post is by guest writer Anthony who has extensive experience working in the UK banking sector and currently works for a major British bank:
Banks were back in the news again last week with Barclays shareholders revolting against the pay awarded to the Barclays’ boss, Bob Diamond at the bank’s annual general meeting, with nearly 27% of investors voting against the bank’s pay deals. Why do banks still continue to generate such hostility?
Is it because we still blame them for the credit crunch and the recession we find ourselves in? Is that fair? The purpose of any private enterprise is to generate profits for the owners and banks do that basically by attracting deposits and lending at a higher rate and the difference is the profit. If there are more effective ways of making money they will find them, hence the growth in securitised mortgages in the 1990’s where bundles of mortgages were sold to investors in return for a share of the profit which meant that the bank received money up front rather than having to wait for the loan to be repaid and which in turn meant they could increase their lending without having to attract more deposits.
In 2001 bank lending was roughly equal to bank deposits but by 2008 bank lending was £700bn more than deposits so the strategy seemed to work – until the credit crunch and everyone lost confidence in the system because the quality of the security for the loans was called into question. Confidence plummeted and house prices which in the UK seem to be everyone’s measure of prosperity started to fall which in turn made the banks’ security even worse. So if the banks were just doing what they are supposed to do (make money) is it the capitalist system that’s at fault?
Many capitalists have been great Christian social reformers like George Cadbury or Joseph Rowntree who were ” organising the means of production for their own profit” but at the same time not keeping it all to themselves. In the 1800’s Max Weber wrote The Protestant Ethic and the Spirit of Capitalism and linked the wealthy classes of Germany, Netherlands, Geneva and Scotland through their Protestant Faith demonstrated through “desire for progress, love of hard work, orderliness, punctuality and honesty, hatred of time wasting through socialising, best use of resources and self control”.
There are 500 verses on faith in the bible, 2,350 on money so maybe we need to consider what Jesus said about money eg. man cannot serve two masters, Mammon and God. If the love of money is the root of all kinds of evil perhaps we have our priorities in the wrong order? Or maybe we are just too greedy, encouraged by slick advertising, the final commandment “you shall not covet your neighbour’s wife, manservant, ox or donkey or anything that belongs to your neighbour” is a clear warning against greed. Maybe there are lessons there for dealing with the current situation but it’s all very well protesting and complaining but what alternatives are we offering and what responsibility are we taking for change? If you don’t like your bank’s ethics have you moved your account?
Have you considered ethical investment or do you turn a blind eye as long as growth is achieved? (good news is that The Co-Op Banks 2011 Ethical Consumerism Report shows growth in ethical investment in 2010 by 9% to £21.2bn). There are alternatives and the Move Your Money campaign is encouraging people to send a message to their bank if they are unhappy by moving their accounts to banks or building societies with strong ethical commitments, community development finance institutions, credit unions ( there are now 25 in the UK offering basic current accounts) or peer-to-peer platforms like Zopa.
In 2010 Mervyn King Governor of the Bank of England said “Of all the many ways of organising banking, the worst is the one we have today”. To sort that out is beyond most of us but we can affect the kind of banking we want by taking an interest in the alternatives. The New Economics Foundation is a good place to start or subscribe to Ethical Consumer for more information. In addition we can make sure that the next generation don’t make the same mistakes all over again by supporting money education charities such as Credit Action.