Ethical banks: an Alternative in the Financial Crisis

Abstract

This paper studies the differences between traditional financial intermediaries (commercial banks, saving banks and credit cooperatives) and ethical banks that focus on positive social and ethical values. The credit crisis calls into question the functionality and good performance of traditional banks. The full incorporation of ethical values and principles by traditional financial intermediaries might be a form to solve their misleading financial situation. We have analyzed four factors that theoretically mean ethical differences: information transparency, placement of assets, guarantees and participation. These four factors are grouped in an index called Radical Affinity Index (RAI). The paper is focused on the study of RAI using a sample of 119 European banks. The evidence shows, that transparency of information and placement of assets are factors that differentiate ethical banks and the rest of financial intermediaries. The guarantees and participation, which seemed to be useful factors to differentiate ethical aspects of banks, do not support clear evidence to the analysis. In sum, RAI is a functional and useful index to show the ethical policy of financial intermediaries