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British banks use less than half of their assets to fund the real economy

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Most commentators seem to agree that a return to ‘back to basics’ banking is needed if we are to avoid the kind of speculative bubbles that tanked the global economy in 2008.

This means banks should focus on taking deposits and offering loans, and making a fair margin on the difference in interest rates between the two. (Once, bankers were said to adhere to something called the 3-6-3 rule: pay 3% interest on deposits, loan at 6%, and be on the golf course by 3pm. This was characteristic of a lazy, uncompetitive banking market, but one which, at least, didn’t crash the world economy.)

How close are we to achieving this ‘back to basics’ banking model in the UK? Greg Van Elsen of the Belgian NGO FairFin last year published a report, A Bank in Reverse, which investigated this question in a Belgian context. The report looked into the financial statements of banks active in Belgium, and sought to identify the country’s “most respectable” bank, that which was most dedicated to funding the real economy and least concerned with short-term trading for profit.

We are convinced”, wrote FairFin, “that most banks should become somewhat better behaved, and be mostly at the service of the real economy. So in fact, a bank in reverse.” So let’s look at the equivalent data for the main banks in the UK.

One of the important ratios the report looked at was the proportion of a bank’s assets which is accounted for by ‘loans and advances to customers’, including lending to businesses and individuals (but not to other banks). This is, after all, what we expect banks to be doing with our money.

Looking at this data for the UK’s main banking groups shows that overall, banks are only using a minority of their assets to provide loans to their customers. In fact, just 42% of the total assets held by British banks is actually loaned to customers. While some of the rest is held as cash and in central banks, a much larger amount is held in derivatives and other short-term assets ‘held for trade’.

Barclays stands out as the only bank with less than one-third of its assets being lent to customers. HSBC and RBS also use a minority of their capital for what most of us recognise as ‘banking’. While none of the British banks fared as badly as Deutsche Bank, which FairFin found used only 19% of its assets for lending, this is a poor picture overall. The Co-operative Bank was the only bank lending out more than two-thirds of its balance sheet to customers.

This is a simple ratio to calculate, but it tells us something about how much of a bank’s attention is focused on financing the real economy.*

Calculating the amount of money banks set aside for short-term trading is a more challenging task, and directly comparable figures are not available for all banks. (As such, this data should be treated with caution.) Again, following FairFin’s methodology, the data below looks at the securities portfolio of the banks to identify ‘securities held for trading’ – the assets most likely to be held for short-term profit-making. (‘Securities held to maturity’, in contrast, concern assets that a bank intends to hold to maturity, and thus are not speculative in nature.)

These figures show a clear correlation between those banks lending a smaller proportion of their capital to customers and those with investing a greater proportion in speculative trading. The Royal Bank of Scotland (RBS) and Barclays stand out as the two banks dedicating more of their assets to short-term trading than they do to actual loans to customers. For RBS – 82% owned, of course, by the British taxpayer – more than half of its assets are ‘held for trading’. The Co-operative Bank, meanwhile, reports investment in derivatives at just 2% of its total assets.

This is analysis is certainly a simplification of the complex operations of today’s banking giants, and further research is needed to identify trading assets which may support the real economy in a positive way. Also, it must be noted that few banks disclose enough information to identify how much of their loans to customers are supporting unsuitable or unjust economic activities.

However, the aim of this analysis is to identify what proportion of a bank’s attention is focused on the productive economy, and what proportion is being gambled in pursuit of short-term profits. The data suggests that, for most of the sector, ‘back to basics banking’ remains a long way off.

* While this analysis is new, similar data has been produced by others in previous years. After compiling these figures, it came to my attention that a similar exercise was carried out on the basis of 2011 data by the European Green party for the website bankingsins.eu. This data is consistent with their figures, but provides an update for 2012, as well as some additional analysis on the picture for the overall market. Their methodology for calculating speculative activity was slightly different, focusing purely on derivatives.

Ryan Brightwell is the founder of Bright Analysis, a research consultancy for sustainability and social change. He was formerly ethical projects adviser at The Co-operative Group. 

Further reading:

Banking regulator fines RBS £5.6m for inaccurate transaction reporting

Big five’s banking monopoly at risk, with 2.4m closing accounts in 2012

Small is beautiful: why alternative banks need to step up to the mark

One responsible banking system to rule them all

The Guide to Sustainable Banking 2012

Ryan Brightwell is the founder of Bright Analysis, a research consultancy for sustainability and social change. He was formerly ethical projects adviser at The Co-operative Group. www.brightanalysis.eu

Economy

How Going Green Can Save A Company Money

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going green can save company money
Shutterstock Licensed Photot - By GOLFX

What is going green?

Going green means to live life in a way that is environmentally friendly for an entire population. It is the conservation of energy, water, and air. Going green means using products and resources that will not contaminate or pollute the air. It means being educated and well informed about the surroundings, and how to best protect them. It means recycling products that may not be biodegradable. Companies, as well as people, that adhere to going green can help to ensure a safer life for humanity.

The first step in going green

There are actually no step by step instructions for going green. The only requirement needed is making the decision to become environmentally conscious. It takes a caring attitude, and a willingness to make the change. It has been found that companies have improved their profit margins by going green. They have saved money on many of the frivolous things they they thought were a necessity. Besides saving money, companies are operating more efficiently than before going green. Companies have become aware of their ecological responsibility by pursuing the knowledge needed to make decisions that would change lifestyles and help sustain the earth’s natural resources for present and future generations.

Making needed changes within the company

After making the decision to go green, there are several things that can be changed in the workplace. A good place to start would be conserving energy used by electrical appliances. First, turning off the computer will save over the long run. Just letting it sleep still uses energy overnight. Turn off all other appliances like coffee maker, or anything that plugs in. Pull the socket from the outlet to stop unnecessary energy loss. Appliances continue to use electricity although they are switched off, and not unplugged. Get in the habit of turning off the lights whenever you leave a room. Change to fluorescent light bulbs, and lighting throughout the building. Have any leaks sealed on the premises to avoid the escape of heat or air.

Reducing the common paper waste

paper waste

Shutterstock Licensed Photo – By Yury Zap

Modern technologies and state of the art equipment, and tools have almost eliminated the use of paper in the office. Instead of sending out newsletters, brochures, written memos and reminders, you can now do all of these and more by technology while saving on the use of paper. Send out digital documents and emails to communicate with staff and other employees. By using this virtual bookkeeping technique, you will save a bundle on paper. When it is necessary to use paper for printing purposes or other services, choose the already recycled paper. It is smartly labeled and easy to find in any office supply store. It is called the Post Consumer Waste paper, or PCW paper. This will show that your company is dedicated to the preservation of natural resources. By using PCW paper, everyone helps to save the trees which provides and emits many important nutrients into the atmosphere.

Make money by spreading the word

Companies realize that consumers like to buy, or invest in whatever the latest trend may be. They also cater to companies that are doing great things for the quality of life of all people. People want to know that the companies that they cater to are doing their part for the environment and ecology. By going green, you can tell consumers of your experiences with helping them and communities be eco-friendly. This is a sound public relations technique to bring revenue to your brand. Boost the impact that your company makes on the environment. Go green, save and make money while essentially preserving what is normally taken for granted. The benefits of having a green company are enormous for consumers as well as the companies that engage in the process.

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Economy

Report: Green, Ethical and Socially Responsible Finance

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“The level of influence that ethical considerations have over consumer selection of financial services products and services is minimal, however, this is beginning to change. Younger consumers are more willing to pay extra for products provided by socially responsible companies.” Jessica Morley, Mintel’s Financial Services Analyst.

Consumer awareness of the impact consumerism has on society and the planet is increasing. In addition, the link between doing good and feeling good has never been clearer. Just 19% of people claim to not participate in any socially responsible activities.

As a result, the level of attention that people pay to the green and ethical claims made by products and providers is also increasing, meaning that such considerations play a greater role in the purchasing decision making process.

However, this is less true in the context of financial services, where people are much more concerned about the performance of a product rather than green and ethical factors. This is not to say, however, that they are not interested in the behaviour of financial service providers or in gaining more information about how firms behave responsibly.

This report focuses on why these consumer attitudes towards financial services providers exist and how they are changing. This includes examination of the wider economy and the current structure of the financial services sector.

Mintel’s exclusive consumer research looks at consumer participation in socially responsible activities, trust in the behaviour of financial services companies and attitudes towards green, ethical and socially responsible financial services products and providers. The report also considers consumer attitudes towards the social responsibilities of financial services firms and the green, ethical and socially responsible nature of new entrants.

There are some elements missing from this report, such as conducting socially responsible finance with OTC trading. We will cover these other topics in more detail in the future. You can research about Ameritrade if you want to know more ..

By this report today: call: 0203 416 4502 | email: iainooson[at]mintel.com

Report contents:

OVERVIEW
What you need to know
Report definition
EXECUTIVE SUMMARY
The market
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
The consumer
For financial products, performance is more important than principle
Competition from technology companies
Financial services firms perceived to be some of the least socially responsible
Repaying the social debt
Consumer trust is built on evidence
What we think
ISSUES AND INSIGHTS
Creating a more inclusive economy
The facts
The implications
Payments innovation helps fundraising go digital
The facts
The implications
The social debt of the financial crisis
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
PUTTING FINANCIAL SERVICES IN AN ETHICAL CONTEXT
An ethical economy
An ethical financial sector
Ethical financial services providers
GREEN, ETHICAL AND SOCIALLY RESPONSIBLE ISSUES IN FINANCIAL SERVICES
The role of investing
Divestment
The change potential of pensions
The role of trust
Greater transparency informs decisions
Learning from past mistakes
The role of innovation
Payments innovation: Improving financial inclusion
Competition from new entrants
The power of new money
The role of the consumer
Consumers empowered to make a change
Aligning products with self
THE CONSUMER – WHAT YOU NEED TO KNOW
For financial products, performance is more important than ethics
Financial services firms perceived to be some of the least socially responsible
Competition from technology companies
Repaying the social debt
Consumer trust is built on evidence
Overall trust levels are high
THE ETHICAL CONSUMER – SOCIALLY RESPONSIBLE ACTIVITIES
Payments innovation can boost charitable donations
Consumer engagement in socially responsible activities is high
Healthier finances make it easier to go green
SOCIALLY RESPONSIBLE COMPANIES
37% unable to identify socially responsible companies
Building societies seen to be more responsible than banks….
….whilst short-term loan companies are at the bottom of the pile
CONSUMER TRUST IN THE BEHAVIOUR OF FINANCIAL SERVICES COMPANIES
Overall trust levels are high
Tax avoidance remains a major concern
The divestment movement
Nationwide significantly more trusted
Trust levels remain high
CONSUMER ATTITUDES TOWARDS GREEN AND ETHICAL FINANCIAL PRODUCTS
For financial products, performance is more important than principle
Socially conscious consumers are more concerned
CONSUMER ATTITUDES TOWARDS TRANSPARENCY
Strategy reports provide little insight for consumers
Lack of clarity regarding corporate culture causes concern
Consumers want more information
THE ROLE OF FINANCIAL SERVICES FIRMS IN SOCIETY
The social debt of the financial crisis
THE SOCIAL RESPONSIBILITIES OF FINANCIAL SERVICES FIRMS
For consumers, financial services firms play larger economic role
Promoting financial responsibility
CHALLENGER COMPANIES AND SOCIAL RESPONSIBILITY
Consumer trust is built on evidence
The alternative opportunity
The target customer

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