The way we use banks

The money we deposit in current accounts, savings accounts, fixed-term deposits, etc., goes into the enormous pot of money banks have at their disposal. They use it to participate in the productive economy, i.e. in the activities of businesses, in two ways: by providing credit (lending money to businesses to carry out their activities) and investing (banks hold shares in companies, which provides capital for the companies and income for the banks, in the form of dividends or increased share values).

Banks can also use our money to invest in financial markets (buying stocks, currency, real estate, etc.) and they participate in the casino economy (short-term speculative operations that can generate high returns).

Smart consumption means questioning which activities our bank provides capital for in order to generate financial returns. As much of the activity of conventional banks is not known to us, we can only make a generic distinction according to the type of entity. Ethical banking can, however, be distinguished from other types precisely because of the type of economy it supports.

Private external debt

Banks have a large share in the external debt of countries in the Southern Hemisphere. In the case of Spain, it is estimated that private debt (what the Southern Hemisphere owes to the country’s private banks) amounts to 12,000 million euros, while public debt (the amount owed to the government) is slightly lower, at 11,500 million euros.[1]

Private banks use various formulas to issue debt, but they are all designed so that multinationals in the Northern Hemisphere benefit from the loan (either because they implement or exploit the project financed by the bank or because the purpose of the loan is to allow them to expand their operations in the country receiving it) while the loan has to be repaid by the borrowing country.

Loans related to external debt help countries in the north much more than those in the south.

  • The North becomes richer thanks to the business it does in the South and the interest it receives on external debt loans.
  • The South becomes poorer because the North’s businesses take control of its natural resources and make it difficult for countries in the South to undertake their own economic and social development. Moreover, the money used to repay the loans could be spent on improving the living conditions of people in these countries.

The money we invest

For some years now banks have been promoting investment funds and pension funds and today it is common for people to have paid money into them. As managers of these funds, banks decide how to use the vast sums of money we collectively invest. Although we can find out what companies, sectors or products we are investing in at any time, we have little or no control over the social model we are supporting and from which we benefit by participating in these funds. For example, we may be participating in external debt if the fund has invested money in a public debt issue by a country in the Southern Hemisphere. And we are sure to be supporting the casino economy.

The concern of some investors about controlling which activities they participate in has led to the emergence of ethical funds. As a rule, they function by applying exclusive criteria: they ensure that we do not invest in businesses in certain sectors (arms, tobacco, nuclear power, etc.) or those guilty of certain conduct (experiments on animals, pollution, exploitation of workers, etc.). However, the criteria for exclusion are very vaguely defined, and in practice very little is excluded, so that there is not a great deal of difference between investing in an ethical fund and a normal fund.

There are also ‘save and donate’ funds, which give a small part of the commission for managing them to charitable organisations. However, they tell us nothing about the social interest of the activities financed with the money invested.

Ethical banking investment funds apply clearly defined, more restrictive exclusion criteria, but, at present, there are no such funds in Spain.

Consequently, if you do not want to be an accessory to and benefit from activities you cannot identify and the casino economy, the best thing you can do is not to put money into funds of any kind (especially pension funds, as your money will be part of the casino economy for much longer).

Outside the world of banking, in the social economy, you can find alternatives that allow you to know the type of economic activity you are investing in, activity governed by principles of social equality and/or sustainability.

[1] Observatory on Debt in Globalization (Debtwatch): Informe sobre la deuda externa en el Estado español. Icaria Ed, 2004.