American consumers mostly bank on profits, not the ethics of saving

Vince Siciliano, head of California-based New Resource Bank, has what he thinks is an abrupt question for people asking about his business and where they might put their hard-earned savings.

“Do you know where your money spends the night?” he asked. “They haven’t thought about that, and I tell them it’s not in a mattress and I assure you it’s not in a vault either. It’s out there somewhere in the world, doing something.”

That something might not just be traditional activities either, such as home and small-business loans. According to the bank watchdog BankTrack, the largest U.S. banks are funding a host of controversial activities, from rain forest removal in Indonesia to speculation on global food prices and the manufacture of cluster bombs — banned by 84 state signatories to the Convention on Cluster Munitions.

None of that is surprising news, of course. But in Europe and other places, some consumers are pushing back against the large banks and their lending practices. Banks have sprung up to offer ethical services, like Netherlands-based Triodos, with branches all over Europe, and the Canadian Vancity. These banks operate on a set of so-called ethical principles, defined in terms of the social and environmental well-being of the communities they serve.

But in the United States, the ethical banking movement has been slow to take hold, and the concept of banking ethics is more likely to trigger associations with the reckless behavior of bankers than the environmental and social impacts of finance and investment.

“Ethical banking? It sounds like an oxymoron, because the nature of capitalism is such that you can’t really be ethical,” said Alex Kapelman, who recently switched banks to avoid ATM fees, not to ensure that his money is used only in an acceptable way. “I mean, the whole point is to just focus on making as much money for yourself as possible,” he added.

But according to Fiona Wilson, a professor at the University of New Hampshire, the U.S. does have an ethical banking movement, albeit with a slightly different focus. Wilson’s work has centered on community development banks, like Chicago’s ShoreBank, a federally regulated institution that brought commercial banking services to low-income neighborhoods.

Although it shut down in 2010 after 37 years in business, Wilson says it helped spawn new banks that funnel investment into economically depressed areas, providing entrepreneurs with funds to start businesses, build affordable housing, construct hospitals and run day care centers. These banks focus on providing a service to the community, as well as generating a profit.

The United States is currently served by just four values-based banks, part of the Global Alliance for Banking on Values (GABV) — an organization that represents banks and credit unions with a shared vision to invest in ways they see as socially and environmentally responsible. California’s New Resource Bank and One Pacific Coast Bank, Florida’s First Green Bank and Minnesota’s Sunrise Banks offer customers checking and savings accounts along with a commitment to social justice and eco-friendly principles.

But these banks represent a sliver of the overall ethical banking market, compared with their European and Canadian counterparts. In 2012, the four GABV-member banks based in the U.S. reported total combined assets of $1.43 billion, less than half of that reported by Germany’s GLS bank — another GABV member — and just a quarter of Triodos’ assets.

Despite its tiny size, some Americans are thinking about the sector. Brooklyn-based artist KC Maddux is not happy with his bank. “I think Bank of America is just kind of awful, so where do I go? Anywhere from here,” he said. “I've been thinking more about going to a credit union.”

Credit unions are the most popular alternative to mainstream banks in America. In 2013, their membership in the U.S. topped 98 million, almost a third of the population. Unlike commercial banks, credit unions usually have a more democratic ownership structure in which those who have accounts own the organization and elect its leadership. Credit unions are often less focused purely on profit and frequently have a stated objective of developing the communities in which they work. But they operate on a smaller scale, with restricted membership and few branches.

Inconvenience didn’t deter Samantha Simon, who recently traveled 40 minutes to downtown Brooklyn to make her first deposit with the Municipal Credit Union, New York’s largest credit union. “I should have done it a while back. That I regret. But going forward, just today coming in, I feel good knowing I came in and I got extra services,” she said.

For Simon, it was banking fees and frustration with her bank that finally prompted her to make the switch to a credit union. “I’m with Citibank, and I always go to the ATM that I pay extra fees for, and I said, ‘Why did it take me so long to join?’ I believe the bigger banks, they don’t look out for people, you know, middle class, average.”

In the U.S., that sentiment is not uncommon. It is still often financial priorities, not ethical or political concerns, that drive people’s banking choices.

“My biggest banking issue is that I don’t like having to go to the Bank of America ATM in order to not pay a fee, so if I can go to any ATM and not worry about it, I’m sold,” said New York–based Michael Johnson, who spent weeks researching an alternative to one of the big banks before switching to an online bank.

That’s not to say that people generally don’t care where their money goes. Socially responsible investment is growing rapidly in the U.S., with 1 in every 9 professionally managed investment dollars invested in socially responsible investing funds — amounting to more than $3 trillion in 2012, according to the Forum for Sustainable and Responsible Investment. That concern just hasn’t translated into similar action at the level of consumer banking and everyday checking and savings accounts.

Even when anger poured onto the streets in 2011, manifesting itself in the global Occupy Wall Street movement, it didn’t prompt a significant consumer backlash against the big banks, or a push for alternatives. Groups like the Move Your Money Project and Bank Transfer Day called for people to transfer their money away from big banks. But by the end of 2011, fewer than 1 in 14 Americans had made the switch, according to Javelin Strategy and Research.

The 10 largest retail banks still hold just under half of all consumer deposits, according to the 2012 Trapped at the Bank report by ConsumersUnion. And when it comes to what they invest in, there is little holding them back. “Unless the business itself is illegal, there are no rules,” said Siciliano. “It doesn't matter if it's diamond mining or gun manufacturing or fracking … There are no regulations against lending to any of those things.”

The fossil fuels industry, most notably coal, is one of the principal beneficiaries of U.S. bank investments. A report published April 17 by the Rainforest Action Network, the Sierra Club and BankTrack shows that, in 2013, Morgan Stanley, Citigroup and Bank of America invested a combined $11 billion in mountaintop-removal coal production and coal-fired power.

Proponents of ethical banking in the U.S. remain certain the sector can grow. “I think one of the problems is not that there isn’t a demand or that people wouldn't like to have that option if they knew about it but that it hasn't really been brought together in a coordinated way,” said Jamie Henn, a co-founder of the climate action group 350.org.

Joel Benjamin, a campaigner at Move Your Money U.K., is optimistic. “The only real power you have as a customer or citizen is over how your money is used and to actively manage the sorts of institutions you engage with,” he said. “What you find is this general drip, drip of bad news, and I think people subconsciously take it in … and that anger gets channeled into people doing something.”

Ben Valentine is one of those people. Based in San Francisco, Valentine moved from Bank of America to a local credit union. “I want a bank that treats their customers really well and makes an extra effort for customers that are poor, who might be getting a house loan for the first time, making sure that’s a wise investment for their customer, because ultimately that makes a wiser investment for the bank,” he said.

Alternative banking in the U.S. can tap into that sentiment of promoting collective social responsibility, Siciliano argues. “I don't think there's been enough thinking about what your money’s invested in,” he said. “But it’s a good place to start.”