Banking products - Ethical issues of equitable returns to savings

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Conference Paper

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Ariff, M. (2011). Banking products- Ethical issues of equitable returns to savings. Paper presented at Ethics in financial transactions & society: The way forward conference, Melbourne, Australia.

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© Copyright Mohamed Ariff, 2011


Modern banking, which developed with full backing of the loan book some 400 years ago, slowly eroded the full backing to some 50% in mid‐nineteenth century. Of course at the time of the Global Financial Crisis, the equity part of capital was limited to no more than 4% of total assets. The money multiplier kept increasing rapidly, which made savings‐cum‐cheque deposits providing the backbone for the creation of money. Against this background the author of this paper raises the simple ethical issue on how much the bank depends on the depositor for its very existence while it relentlessly pursues the shareholder interest. This analysis highlights the very deep ethical issue of how modern banking, using the deposit to create more money, has managed to relegate the public savers/depositors to the lowest level while augmenting the interest of the wafer‐thin equity providers and of course the top management with its high rewards.

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