COMMUNITY BANKS Part two

Ethical Considerations That Favor Community Banks

Ethics are directly related to social relationships, and here are some reasons why the ethics favor community banks:. Community and Credit Union banking involves community relationships between borrowers and lenders. There is a good probability that they will know each other or have mutual acquaintances. The character of borrowers and lenders counts for something in decisions that contribute to trust and loyalty. There can be a mutuality of interest between creditors and those to whom they lend. Within the large, international banks, the relation is transactional, counting mainly as business deals. The future destiny of some locally invested funds within the international banks may not be known by either party.1

Here is one example of treating savings as an economic and ethical value. An official of the Federal Reserve Bank in Dallas, Texas, has written of the change in goals there from “borrow and spend” to “save and invest.” To describe “saving” as an ethical action has a long history in our country. The basic arguments for it include protecting the health and psychological well being of one’s family, and avoiding the need to seek public assistance. The latter reflects a kind of reciprocity, giving something back to the community. Community banks are well positioned to contribute to the savings habit, because the banks’ contributions to the local community are known. Those local contributions may include building affordable rental housing near good jobs and schools. These are the kind of institutions targeted by the Treasury Department’s pilot program to encourage savings accounts described above. Its goal includes fostering savings in the country as a whole, with special attention to LMI families. The savings habit by Americans also helps the country reduce its need for foreign capital.2

1. David Morrison, “New America Foundation Advances Community Bank, CU Capital Proposal,” Credit Union Times, December 03, 2008, reissued January 23, 2012,1.

2. Phillip Longman and Ellen Seidman, “To Save American Finances, Bring Back Community Banking,” The New America Foundation, November 20, 2008, 8. (http://new America.net/publications

One Response to “COMMUNITY BANKS Part two”

  1. Doug Hollowell Says:

    Thank you for the concise and insightful article. Meaningful and lasting reform in financial services certainly will be driven less by legislation and regulatory reform and more by depositors and consumers of other bank services demanding that banks change their behavior. This, of course, turns on bank customers being mindful of the social and community relationships involved with choosing a bank and the ethical considerations that go with that choice. We can and should only deposit our money with banks that conduct themselves in a manner consistent with our personal values and community goals. It is, after all, our money. If only we could foster a re-emergence of old style mutual banks where the depositors were, for all intents and purposes, the owners of the bank, and had a direct means of influencing the bank’s business practices.

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