Friday, 22 September 2023

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Tan Jee Say: Ethical Banking and Europe’s “Tail Risks”

By Tan Jee Say

With global financial woes dominating the world’s headlines, it is easy to forget about the existence of ethical banks. They continue to thrive in their quiet understated ways, living out the moral principles and causes for which they are established.  Their principal motivation is not maximize profits or rake in huge bonuses, but to promote charity or a religious mission.

I had the opportunity of visiting one such bank last Thursday, the Kingdom Bank in Nottingham where Robin Hood and his Merry Men used to roam in nearby Sherwood Forest. What an ins0iration!

The bank’s chairman Adrian Lewis is an old college mate. It is a UK based independent Christian Bank, authorized and regulated by the Financial Services Authority. It has a history of over 50 years, providing funds to build and develop churches and Christian ministries within the UK. Adrian sees a great future for a small niche bank like Kingdom’s. Although traditional churches experience declining attendances, new churches are coming up fast with innovative ways of reaching out to the young and they have succeeded in building up even bigger congregations.

Their funding needs will increase and Kingdom Bank will grow with them. Adrian said it will remain strictly as a savings and loans bank with a religious mission and will not venture into esoteric banking products that have brought so much grief to the community. The world will be a much happier place if banks stick to their traditional role of channeling savings into development of real economic activities rather than into speculative investment products. (There is a similar lesson for us in investing Singapore’s surplus savings but we will address that issue in another forum at an appropriate time.)

As a momento of my visit, Adrian gave me a book that contained all references to money and possessions in the Bible.

The biblical reflections on prudent saving and investment surfaced again in the evening when I met another old friend Tim Tacchi for dinner. Tim is a global fund manager. I asked him for his views on what lay ahead for Europe’s financial problem. He said he would watch out for Europe’s “tail risks” which he referred to as events with low probability of happening but if they do occur, will have significant consequences.

If France succeeds in its “fiscal consolidation” and brings its deficit to within 3% of GDP, then it can tell Germany that it is an example of economic austerity for countries in southern Europe. But if Germany ends up bailing out everybody, then German bond yields will go up to where they were at the beginning of the crisis.

Then liquidity will be severely stretched. We would be in for a rough ride. And it all started with the big banks pushing aggressive loans and investment products to “unsuspecting” customers in southern Europe. If only they had stuck to the traditional savings and loans practices of ethical banks like thy Kingdom Bank.


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