The banking industry, in its wider sense, consists of a number of financial institutions like commercial banks, investment banks, building societies, credit agencies, pension funds, hedge funds, insurance firms and private equity companies. All these institutions are viewed by the majority of people to have no other objective, or in a matter of fact; purpose or use, other than the generation of wealth; the maximisation of financial assets. Actually, in the current "post 2008 economic crisis" financial environment, with the low and middle classes still struggling to recover for the financial hurricane that hit them, the majority of people think that the banking system is a trust of extremely wealthy, extremely corrupt, extremely unethical institutions, like Goldman Sachs and J. P. Morgan, that their only use is to make something out of nothing; to create stock exchange bobbles, to invent ways, no matter how risky or unethical, to increase their profits and to gamble hard working people's money. However, this is not exactly the case. It is evident now that the financial institutions, in order to maximise their efficiency; maximise their profits and power, transformed themselves to extremely complex and multilayers organisations, that evaded regulation, or any other form of control, legal or ethical. Governments had an important role in this transformation that of course did not happen overnight. Government regulatory bodies, the Bank of England for example, if we are talking about the UK, and even independent ombudsman agencies, failed to keep up with "the banking revolution" that was happening prior to 2008, or, as some may say, did not want to keep up, as governments were also benefiting by this book in investment and the pseudo-generation of wealth, through taxation and low State Bonds rates. The example of Greece and Portugal that were able to sell bonds and get money from the international market at almost the same price as Germany's Bonds, is a very characteristic one.
Governments, of course were not the only ones that did not care from were all this wealth, all these money, were generated from. The people, us, the "normal" investors, who know cry unfair and blame banks for being "international criminal organisations" and have no sense of ethics, were also happy to turn a blind eye, as long as our savings and investments were multiplying, as long as we could now afford this new house or this new Rolex watch.
Of course, the way banks, and all other financial institutions use our money, where they invest them, borrow them or who they finance with them, in order to give us back the high returns we so much want and like, does matter. Some people may say "why should I care what the bank does with my money, as long as at the end of the year I receive a hefty return". Well, they may be forced to change their minds if they knew that their money was used to finance a dictator in South America, arms dealers and manufacturers in Indonesia, or a multinational corporation to set foot in Manila and pay "slave wages" to its employees there. People tend to reconsider and to realise the impact of their actions or better of their "doing nothing" and "do not carrying" once they come face to face with the consequences. And the strongest wake-up call was that of 2008, which unfortunately had disproportional effects to the ethical conduct of banks, in comparison to the misery and poverty they/it created.
However, the questions about the banks morality, ethics and social responsibility, unavoidably, and due to their size and power, go beyond investing money in the wrong ventures and financing the wrong people. Institutions, like people, with huge wealth and power, and with almost non existed morality or regulation, will use this power to control, and shape the global economic climate to their liking.
Unconscionable Practices
The primary functions of banks are to protect people's money, provide credit in the form of loans, mortgages, debentures and credit cards to individuals and businesses and to increase the wealth of investors. However, banks are corporations, and as such they have shareholders and they are governed by a board of directors. So there is a conflict here; the" theoretical" primary functions of a bank, having its customers as its centre, colliding with the corporate nature of the bank which dictates that shareholders must be priority one, must be the group to keep happy and satisfied. Taking in account the fact that the board of directors of any bank, including their CEOs, are shareholders, and they do not need to be major shareholders, just a few hundred of million will suffice, then one understands that the customer is, unfortunately most of the times, viewed as a cash cow. High interest rates, commission fees that reach the levels of extortion, credit cards that almost double what its user owns in a matter of months and bulling tactics once someone drops back on payment are amongst the things that banks have, in the majority of times correctly, accused for.
None expects banks to centres of morality and ethical conduct. However, it is our money that gives them the power to do what they do and they should be a bit more careful on how they treat customers and never impose themselves on them.
High-risk Banking
As every GCE level student learns, there is a huge difference between calculated risks, high-risks and out right gambling. Banks, since they are dealing with their customer's money, should be more careful on how they invest this money. The excuse, of course, is always there; when someone goes to the bank to invest his money, his personal banker asks him what level of investment risk is willing to take. Low, Medium or High. However, almost never the banker really explains what high or medium risk is. The example of sub-prime mortgages in the USA, what actually led to the 2008 economic crisis, can be used here to demonstrate how banks gambled, and lost, with people's money in order to maximise their own profits, completely disregarding their customers and actually, in some cases, misleading them and "betting" against them. What happened is the USA was that banks started to use mortgages and packing them as financial products, called CDOs. These CDOs were offered in three "flavours"; AAA; low risk, BBB medium risk and "unrated" high-risk. However, when all available mortgages were "transformed" to CDOs, and as there was still demand for CDOs, banks started to offer mortgages to people who were not qualified to have a mortgage. This of course is unethical and malpractice. However, banks were, or thought they were, double winners; they get to sell mortgages and CDOs, increasing of course the investment risk, as some of the people that were offered mortgages was obvious that they could not pay them back, however how care? It was not their money that they gambled, it was ours (Technology, 2008).
It is characteristic that some banks employed a policy of sell without carrying what and to whom they sell. Bank employees were instructed to "sell" 1000 credit cards in a day, in order to get a bonus of £10,000. So, most of these bank employees must have thought; who cares if they customer can afford a credit card, even who cares if will not pay it and the bank will take the hit, as long as I get my £10,000. The banks were creating monsters and laying the foundations for a crisis that of course did come.
As mentioned above, this would not have happened if there was sufficient regulation. However, it seems that the people who call themselves experts in all things economy and finance, the very people who were supposed to see the crisis coming, were themselves seduced by the freedom of wealth generation and the abundance of money.
Banking and Multinational Corporations
Multinational corporations are market leading and market dominant companies that generate a tremendous amount of wealth and economic growth. Companies like Apple, Microsoft and Samsung, giants of the global marketplace, and very attractive, and relatively safe, investments. Who would not have liked to invest in Apple or Coca Cola? Their shares keep going stronger and stronger. Banks, of course, see these opportunities and invest heavily, on suck companies and right so, someone will say, as where is the problem in owning Microsoft or Apple shared.
However, the group of big multinational corporations, that display high growth rates, includes companies like Phillips; one of the world's biggest arms manufacturer, Lockheed Martin, Textron and Thales; USA's top arms manufacturers, as well as hundreds of other corporations that are dealing with war, death and misery. Even companies like Nike, and Apple, have factories in third world countries, like Vietnam, manufacturing their products, and paying their employees "slave" wages, having them to work more than 12 hours a day. The example of Foxconn, the company that manufactures Apple's products in China, which had 18 workers attempting suicide last year, is very characteristic of the working conditions in some of these places (Verge, 2012).
Would anyone have liked to invest his money on companies that produce illegal cluster weapons that kill thousands of children all over the world? Would anyone have liked to invest on a company that treats its employees as slave, as animals? Should bank invest our money on these companies or even own shares? This is a huge ethical issue. Where business stops and real world begins is something that banks have to define if they are to become more "ethical".
Banking and Politics
Politics and economics always come together. The most important job of a government is to promote the economy of the country, accelerate its economic growth, help local businesses and increase exports. Nothing suspicious or unethical about it, as the economy of a country is the most important factor for quality living, for maintain and improving all services; like healthcare and education and is the indicator for the power and "leverage" that a country has globally. The USA is not a superpower just because it has nuclear weapons and a huge military machine. It is because it has the world's strongest economy. China had 1 billion people in 1980, and now has 1.3 billion (Bank, 2012). However is not the 300 million people that make China a world heavy-weight nowadays. It is the country's economy and its position as the number one exporter in the world.
However, there is another side of the relationship between politics and finances, or better between politicians and financial institutions. Big European and American financial institutions have been accused, reputably, for providing loans to totalitarian regimes and dictators. Sudan, Ivory Coast, North Korea are but some of them. Names like Augusto Pinochet, the dictator of Chile, Robert Mugabe of Zimbabwe and hundreds of others; warlords, "revolutionaries" and freedom fighters, are among the best clients of many Swiss banks. Muammar Gaddafi alone had in Swiss bank accounts approximately 400 million US dollars (Reuters, 2011). By financing and/or providing services to such people and countries, banks actually add and participate in the oppression of civil liberties and everything this means for the citizens of these countries.
Of course this may seem a bit to "distant" for some of us, a bit too "foreign", too "far away" from us. We do not have to look at Burma to see the unethical involvement of banks in politics or the corruption that they bring with them. We only have to look in our back yard. In Europe and the USA banks and financial institutions employ "lobbyists", support specific political candidates that abide with their agenda and spend millions of pounds or dollars to "leverage" their interests and influence governments and lawmakers.
Conclusion
Banks and financial institutions should re-evaluate their practices and conduct, especially after what happened in 2008 and the worst economic crises mankind has ever faced. Banking does not have to be all about profit, no actually banking can be all about profit, but not by sacrificing ethics and denying any responsibility. Banks are huge organisations, but they are not larger than life, they are not larger/ more important than our society, they are not independent of the people, who are their customers and clients. If banks do not change their practices they, most surely, face problems in the future, as people, investors, are changing, evolving, starting to pay attention to ethical practices, corporate responsibility and corporate environmental impact. The 2008 crisis must become a lesson for all; banks and investors alike.
