Table Of ContentSustainable Finance
Cristina Rovera
Ethics in
Banking
Is It Possible?
Sustainable Finance
SeriesEditors
Karen Wendt, CEO. Eccos Impact GmbH, President of SwissFinTechLadies,
PresidentSustainable-Finance,Cham,Zug,Switzerland
MargaretheRammerstorfer,ProfessorforEnergyFinanceandInvestments,Institute
forFinance,BankingandInsuranceWUVienna,Vienna,Austria
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Cristina Rovera
Ethics in Banking
Is It Possible?
CristinaRovera
SchoolofManagementandEconomy
UniversityofTurin
Turin,Italy
ISSN2522-8285 ISSN2522-8293 (electronic)
SustainableFinance
ISBN978-3-031-22147-7 ISBN978-3-031-22148-4 (eBook)
https://doi.org/10.1007/978-3-031-22148-4
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To Rebecca, Carlo, Benedetta and Giulio
I wish You the Best, in a better world
Contents
1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2 EthicsinFinance:Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 Definition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 TheResearchAim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 TheHistoricalOrigins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.4 TheNeedforEthicsinFinance. . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5 TheEthicalBank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5.1 Aristotle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5.2 ImmanuelKant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.5.3 JohnStuartMill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.6 WhatAbouttheItalianbanks?. . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.6.1 MAGs.. . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . .. . 27
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3 TheESGWorld. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.1 TheHistoryofBancaEtica. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2 TheGoalsofBancaEtica. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.3 BancaEtica’sOperations. . . . . . . . . . . .. . . . . . . . . . . . . . . .. . 31
3.4 EticaSgr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.5 TheHistoryofESGFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
3.6 ESGCriteria:WhereEthicalFundsInvest. . . . . . . . . . . . . . . . . 35
3.7 TheOperationofESGFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.7.1 Legislation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3.7.2 Screening. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
3.7.3 EthicalAdvisors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.7.4 EthicalIndex. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.8 GlobalMarketValues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
vii
viii Contents
3.9 TheItalianCase. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.10 CriticismofESGFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
4 TheFightAgainstMoneyLaunderingandTaxEvasion. . . . . . . . . . 55
4.1 MoneyLaundering:HistoryandDevelopmentStages. . . . . . . . . 55
4.2 Anti-moneyLaunderingLegislation. . . . . . . . . . . . . . . . . . . . . . 56
4.3 ItalianAnti-moneyLaunderingLegislation. . . . . . . . . . . . . . . . . 57
4.3.1 PassiveCollaboration. . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4.3.2 ActiveCollaboration. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.3.3 TheLimittotheCirculationofCash. . . . . . . . . . . . . . . . 64
4.3.4 NewRegulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
4.4 TaxEvasion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
4.4.1 TaxHavens:TheLuxLeaksandPanamaPapersCases. . . 68
4.4.2 Whistle-blowers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.5 TheFightAgainstTaxEvasion:TheTAXECommission. . . . .. 77
4.6 InternationalMarketValues. . . . . . . . . . . . . . . . .. . . . . . . . . . . 79
4.7 FiguresinItaly. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5 TheFightAgainstUsury. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.1 Usury:DefinitionandLegislation. . . . . . . . . . . . . . . . . . . . . . . 89
5.2 WhentoBeAfraidofUsury:TheCreditTrend. . . . . . . . . . . . . 90
5.3 TheThresholdRate. .. . . . .. . . . . .. . . . .. . . . .. . . . .. . . . .. 94
5.3.1 OER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
5.3.2 Objections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4 Anti-usuryFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4.1 TheSolidarityFund. . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4.2 ThePreventionFund. . . . . . . . . . . . . . . . . . . . . . . . . . . 102
5.5 TheItalianData. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
5.5.1 AccesstothePreventionFund. . . . . . . . . . . . . . . . . . . . 105
5.5.2 FundAllocation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
5.5.3 TheMonitoringofContributionsDisbursed. . . . . . . . . . . 112
5.5.4 RegulatoryInnovations. . . . . . . . . . . . . . . . . . . . . . . . . 113
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
6 IslamicFinanceandMicrocredit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
6.1 Microcredit:HistoryandCharacteristics. . . . . . . . . . . . . . . . . . . 115
6.2 TheGrameenBank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
6.3 ReflectionsandCriticism. . . . .. . . . . . . .. . . . . . . .. . . . . . . .. 118
6.4 MicrocreditinItaly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
6.5 IslamicFinance:HistoryandBasicPrinciples. . . . . . . . . . . . . . . 120
6.6 TheIslamicBank. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
6.6.1 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
6.6.2 TheUseofFunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Contents ix
6.7 IslamicSecurities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
6.8 IslamicInsurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
6.9 IslamicMicrocredit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
6.10 DataonIslamicFinance:IntheWorldandinItaly. . . . . . . . . . . 132
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
7 TheRescueofBanksinCrisis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
7.1 LiteratureontheBankingCrises. . . . . . . . . . . . . . . . . . . . . . . . 137
7.2 TheHistoryofBankingInstabilityinItaly. . . . . . . . . . . . . . . . . 138
7.2.1 MoreRecentHistory. . . . . . . . . . . . . . . . . . . . . . . . . . . 140
7.3 BalanceSheetFigures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
7.4 TheRescueInstruments:TheBail-OutandtheBail-In. . . . . . .. 157
7.4.1 TheNewSolution:TheBail-Over. . . . . . . . . . . . . . . . . . 159
7.5 BadBanks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
7.6 FinalConsiderations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164
8 FinancialFrauds:IsItalyDifferent?. . . . . . . . . . . . . . . . . . . . . . . . . 167
PauldeSury
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175
9 Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
Chapter 1
Introduction
Ethicsandthefinancialsystem.Thisassociationhasbeennaggingatmymindfora
longtime.Isitpossible?Isitrealisticallyimaginable?
I remember travelling to Pakistan in 2012. On my own. My goal? To reach the
base camp of K2, the Italians’ 8000-metre peak. On my way out of Islamabad by
bus,enroutetoSkardu(fromwherewethensetoffforAskoli,thelastvillagebefore
enteringtheCentralKarakorumNationalPark,accessiblebyjeep),IsawaBankof
America sign. They had drawn two big red lines across it. They had sort of
crucifiedit.
Pakistan—as I’m sure you know—is the cradle of the Taleban. In Europa,
AustraliaoranyUSstate,youwouldhavesimplythoughtthatabranchhadclosed.
Possiblybecauseithadbeenphysicallymovedtwostreetsaway.ButnotinPakistan.
In Pakistan, things are different. Unfortunately, there is such a thing as religious
radicalism.YetinIslamabad—inadditiontothebeautifulFayṣalmosque—thereis
alsoaCatholicchurchandthereare22parishesthroughoutnorthernPakistan.Yetit
isnaturaltothinkthatitwasthecontrastbetweenWesternthinking—moreoriented
towards the law of money—and the local culture, steeped in the Muslim religion,
which rests on the Shari'ah, an ethical code of conduct, that caused the Bank of
Americabranchtoclose.
Thisisbywayofexample.
Let’s go back to where we started. Can there be ethics in the financial system?
Thefinancialsystemasweunderstandit,asalawaimedfirstandforemostatmaking
a profit. The issue goes back centuries, having already been addressed by scholars
and philosophers such as Aristotle or Kant, but also by some of the most famous
economistsinhistorysuchasSmith,Mill,ParetoandKeynes,whoallreflectedon
collectiveandindividualutility.
As a student of traditional economics, since high school I have been taught the
laws of risk and return, profit optimisation and maximisation of personal utility.
WhileIamawarethatthetheoryofhomooeconomicus(whoknowseverythingand
makesrationaldecisions)isasimplification,subsequentcontemporaryeventsmade
me realise how important human psychology is in determining choices. Whatever
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C.Rovera,EthicsinBanking,SustainableFinance,
https://doi.org/10.1007/978-3-031-22148-4_1
