A question of ethics

How beneficial are bank profits if they contribute little to society?

Federal Finance Minister Jim Flaherty will tell you that if you have money to invest and want to see high rates of financial return, you should invest in one of the “big five” banks in Canada: Royal Bank of Canada, Toronto Dominion, Canadian Imperial Bank of Commerce, Bank of Montreal and Bank of Nova Scotia. Investing in Canada’s banks is good because it will earn you lots of money.

All the numbers and statistics will tell you the same thing. Sure, analysts will be quick to point out the fluctuations, but all in all banks are earning an astonishing amount of profit. 

In the third quarter of 2010, the “big five” cashed in $4.8 billion. Toronto Dominion’s (TD) profits grew by 29 per cent to $1.18 billion. In March, the Royal Bank of Canada (RBC) announced its first quarter profits had increased by 35 per cent to a staggering $1.5 billion. A year before, in the thick of the recession, they posted a quarterly profit of $1.05 billion. 

As we try to wrap our heads around the enormity of those numbers we should also think about the inherent ethical justification of these profits. 

Increases like that are unheard of in the small business world. Big profit schemes are working better than ever for the “big five.”

They earned big on consumer loans, mortgages and corporate loans. Loans for mortgages are rising again but the large majority of Canadians’ real wages are not rising.

Many people take out loans to live up to the pressures of the ownership society we live in. Banks benefit from societal pressures that influence people to take out loans they can’t really afford.

Liberal and Conservative politicians often boast the banks’ stable profitability as proof that Canada has a strong and responsible banking sector.

In reality, the stable increase in bank profits has little to do with the strength of the Canadian economy or the greatness of our financial sector. They help our Gross Domestic Product (GDP) grow, but little else.

All these numbers really prove is that banks are really good at making profits off of their customers. After all, these banks are private sector corporations.

Flaherty can go on all day about the resilience of Canadian banks, but he can’t explain why these profits are beneficial for the greater good of the people.

And shouldn’t we demand that there be justification beyond our ability to take out more loans?

For instance, these profits are achieved with little to no regard for the environment. Banks will loan money and collect interest on any legally operating business. They are the fuel for any status-quo business that just wants to earn profits, regardless of how these profits are achieved. RBC lent out $16.9 billion last year in loans to corporations operating in the tar sands.

Flaherty and others will argue that profits mean investment that will make firms grow, create jobs, nourish the economy through consumption and, thus, expand business. 

But empirical evidence does not support this. Business investment has been stagnant over the past 30 years and has stumped even the International Monetary Fund. Profits alone do not have a direct correlation to investment. Such justifications do not hold true for bank profits.

Banks help increase the GDP, which helps them maintain legitimacy to the public, but substantial good does not arise from their profits. Profits of this level should be used towards beneficial goals.

There should be strong empirical evidence that the monster profits are ethically justified, not that banks are simply capitalizing on most people’s inability to live up to the demands of the capitalist economy.

This isn’t about fulfilling some socialistic ideology. It is about reconsidering the dogma that profits are always justified as long as they are achieved within the parameters of the law. 

The “it’s just business” justification is as ignorant and ethically depraved as it is maddening. There is an ethical paradox here that we should all consider within mainstream political discussions. 

Matt Austman is a politics student at the University of Winnipeg.

Published in Volume 65, Number 6 of The Uniter (October 7, 2010)

Related Reads