Features

What is a bank?

Published

13 years ago

May 17, 2012

Blue & Green Tomorrow

There is a wealth of information and jargon out there surrounding banks and investment. Here at Blue & Green Tomorrow, as part of our “What is…” series, we’re looking to aid our readers in understanding of these terms. This latest addition considers, “What is a bank?”

A literal definition of a bank as produced by Investopedia.com is a “financial institution licensed as a receiver of deposits. There are two types of banks: commercial/retail banks and investment banks. In most countries, banks are regulated by the national government or central bank.”

A commercial or retail bank is the type with which most of us are familiar. Their primary function is to manage withdrawals and deposits as well as supplying short-term loans to individuals and small businesses. On a daily basis, consumers use these banks for basic checking and savings accounts, certificates of deposit and home mortgages.

Investments banks do not take deposits. They assist individuals, corporations and governments in raising capital through providing services such as underwriting and corporate reorganisation to institutional clients.

With many banks now offering an online service with the inclusion of higher interest rates and lower fees, the consumer’s decision of which bank to do business with is often based on the convenience of the service provided.

The large proportion of society uses a bank, or certain aspects of a bank, every day. Despite this, little attention is paid to where our money actually goes once deposited.

Your bank statement, whether received online or through the post, implies that your money, however much it may be, just sits, and doesn’t go anywhere. In fact, this is not true.

At the end of the day, a banking institution is a business and a business is there to make a profit. To make this profit, the bank lends your money to corporations, public institutions and even governments with interest.

Depending on who you bank with, this could mean that your money may be involved in heavy polluting industries or even an oppressive regime.

What are the green and ethical options?

Blue &Green Tomorrow strives to help you make well-informed choices on where your money is best placed. As previously reported, there are a number of banks and building societies with prominent green and ethical credentials.

The Co-Operative Bank has robust green and ethical policies which govern its current accounts, savings and investment products.

The policy it has put in place covers human rights, the arms trade, corporate responsibility and global trade, genetic modification, social enterprise, ecological impact and animal welfare.

It also seeks to help in lending to projects within the renewable energy and carbon reduction sectors – with onshore wind being a particular area of interest.

The Ecology Building Society offers a range of green savings accounts and mortgage options. As stated on its website, “We believe in the concept of sustainability throughout the ‘footprint’ of a mortgage, from the way it’s funded to the ultimate impact it makes on the environment.”

The building society’s mortgages support building practices that respect the environment sustainably and have low impact on communities.

Charity Bank invests through loans to benefit charities and communities. It offers saving accounts and cash ISAs to consumers.

Its vision is to “have a thriving third sector that brings about real social change and a society where social return is considered as important as financial return.”

The bank’s core values, which run throughout the organisation are to be honest, people focused, responsible, innovative and committed.

Triodos Bank offers green and ethical savings accounts and investments. The bank was established in 1980 in the Netherlands and now has significant operations in the UK.

Triodos ensures that its investments lie in environmental, community-based and art and culture projects. It makes money working towards positive environmental, social and cultural change.

But as well as considering the bank you use, there other key green and ethical issues to take into consideration.

Responsible Lending

Does the bank you are considering have responsible lending policies that ensure that its products and services are targeted in an appropriate manner? Does it provide help and advice to customers who may fall into financial difficulty?

Climate Change and the Environment

It is not just where these banks invest their money but also how it runs its business. Does it have polices in place to lower its carbon emissions or offer its customers green products?

Financial Exclusion

There are an estimated two million people in the UK without even the most basic bank account. Is your bank doing anything to address this situation?

If you would like to know more about which banks are the most green or ethical, or you would like advice in making a more ethical choice, fill in our online form and we’ll put you in contact with a specialist financial advisor.