Ethical Orientation in Banks - Original Roots in Bank Governance and Current Challenges

Over the past 30 years, the banking sector has been characterized by increasing attention to ethics, which intensified as a consequence of the global financial crisis. Banks have the privilege and responsibility of directly interacting with a wide and diversified clientele and are supposed to base their long-lasting relationship with this clientele on trust, transparency, and proper behavior. Special types of banks, “alternative” to traditional banks in what they consider ethical behavior, have been increasingly present in the market. While alternative banks still cover a limited market share in terms of intermediated funds, awareness on their values and operational choices has been spreading throughout the financial community. The concept of social impact finance, currently permeating the financial sector, is a product of such a process. One interesting question, therefore, emerges: are these banks truly special and clearly distinguished from traditional banking? A second concern focuses on the role that these banks may play in the financial system due to a more intense ethical orientation. To answer these questions, it is necessary to outline a suitable analytical framework. Differently from the common approach, which is purely based on banks’ investment choices, this contribution draws from some cornerstone work on ethical business and is enriched by the original view of a classical author of the Italian business economics academic community. The resulting holistic approach bases banks’ ethical orientation on the institutional nature of financial intermediaries, their ultimate strategic goals, and their role in the economy and in society. To make the analysis more concrete, the suggested theoretical framework is used to study two types of banks that are commonly considered particularly ethically oriented: cooperative and alternative banks. It emerges that a small size may be critical in facilitating the achievement of a high degree of ethical orientation. The conclusions drawn based on these cases are used to offer some critical perspectives on the role of ethics in the current overall banking system.