Are Banks a force of Good or Evil?

*Updated 2021

The investigations that followed the Great Recession of 2007-2009 seemed to unanimously proclaim the single-minded greed of the finance industry and those who operate it. In the face of a housing-market crash and soaring unemployment, the seven-figure bonuses banks doled out to their executives after the finance industry received $700 billion in tax-payer-backed subsidies seemed a sure indication of an industry lacking a moral compass.

In the years since, the following question has lingered: Are banks indisputably evil, or do they perform an invaluable service to society by structuring monetary interaction and helping average Joes get ahead? And during the pandemic, when people were experiencing economic hardships and eventually had access to coronavirus federal stimulus money and loans, the question resurfaced about the type of influence and role of banks in society.

Let’s investigate three reasons why banks are the good guys, and three reasons why they might be evil.

 

Banks improve lives

 

Banks help people achieve their dreams

Banks offer services and products that genuinely help people get ahead in their lives. Additionally, they assist students with financing post-secondary degrees and help families move into their own homes. In many ways, the credit offered by banks has been a great equalizer, allowing the middle class, and in many cases, even the poor, to open small businesses. These businesses diversify – and therefore strengthen – the economy. After the pandemic drove everyone online,. digital banking is being considered as the new normal, which may help more people across the world access or transfer funds more conveniently. Banks may also benefit developing economies.  Microloans, coupled with savings options, have been shown to nearly quadruple the food budgets of the ultra-poor. In countries rich and poor, banks provide more than just financing to their customers – they provide opportunity.

 

Banks contribute to global economic stability

Banks contribute to economic stability in a variety of ways. They promote standardization of financial instruments (checks, wires, credit cards, etc.), which enable businesses to operate domestically and internationally in predictable ways (i.e., no one expects to rent a hotel room by trading goats; currencies are recognizable and have easily discernible value).  Moreover, centralized banks place important controls on interest rates and the influx of money into the economy, thereby controlling inflation and pricing, and helping national and international economies to mitigate financial downturns. These important controls provide the consumer confidence that keeps businesses and individuals engaged in the economy – buying, lending, hiring, and entering new ventures that propel humanity forward.

 

Banks offer security

In the 19th and 20th centuries, the iconic vault doors were a financial center’s promise that their client’s cash (or gold) would be safe from theft. Today’s banks promise security through technology – banks protect clients by offering highly encrypted digital transactions, early fraud warnings, and as of late, biometrics. Victims of digital fraud are protected by their banks and by the FTC, which imposes limitations on customer liabilities. Recognition of the vital role banks play in securing individual livelihoods – as well as that of the broader economy – has led governments in North America and Europe to insure depositors, making keeping one’s money in the bank far less risky than stashing cash under the mattress.

 

Banks are evil

 

Banks will get into bed with anyone with money

Banks in Sweden and Switzerland accepted deposits of looted gold from the Nazis throughout WWII, and the latter imposed strict bureaucratic policies to deflect claims on monies deposited by Holocaust victims. More recently, Switzerland’s HSBC has been implicated in colluding with the world’s most ignominious criminals – from Haitian dictator Jean Claude Duvalier to Osama Bin Laden. The Panama Papers revealed that HSBC was one of many financial institutions that gave shelter to illicit activity and supported tax evasion. If that isn’t enough, Latvia’s ABLV bank was accused of money laundering not long ago, and has allowed their clients to do business with countries like North Korea, which violates sanctions imposed by the U.N. Willingness to collaborate with such strange bedfellows surely points to moral bankruptcy across the board. And the more recent Pandora Papers further detail how offshore banking networks continue to benefit only the ultra-wealthy and well-connected.

 

The finance industry (and the organizations that monitor it) are willfully blind to wrongdoing

When bankers and the systems that govern them are alerted to problems in their industry, they often look the other way. Brooksley Born, Chairwoman of the Commodity Futures Trading Commission from 1996-1999, rang the alarm bell loud and clear on the dangers of derivatives (the kind of speculative investments that drive pricing bubbles and precipitate financial crashes like the one that crippled the global economy in 2008) to then-Federal Reserve Chairman Alan Greenspan, who ignored her.  Similarly, dozens of analysts alleged the unreasonably high returns produced by Madoff Investment Securities could only be the result of fraud, but the SEC ignored obvious indications of Madoff’s Ponzi scheme, which cost unsuspecting investors billions. Repeat instances of foul play quite rightfully raise public skepticism about the integrity of the entire finance industry.

 

Banks guide the flow of money from the poor to the rich

The preferential treatment of the rich in banking is almost a given, from interest rates to service fees. The more money a client has, the better his prospects for receiving lucrative interest rates on loans, investment opportunities, and returns on those opportunities, thus expanding gaps between the rich and poor. Speculation is another tool for transferring wealth from the rich to the poor, which drove the 2007 mortgage crisis. The actual value of the homes that were speculated upon was much lower than the speculation-driven market value. When the speculators at the top realized this, they cashed out, precipitating the housing crash and resulting in more than two million home foreclosures. While large investors had the chance to cash out, working families were forced to relinquish homes they could no longer afford. These activities were underwritten by every large bank in America, showing their bottom line is dollars, not people.

 

The Bottom Line: The financial industry has promoted economic mobility and pushed the global economy to ever-higher heights, but its money-hungry nature causes banks to turn a blind eye towards corruption. What do you think? Do you trust your bank to use your money for good?

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