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Social and alternative banking: project selection and monitoring after the New Basel Capital Accord

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  • A. Lanzavecchia
  • L. Poletti

    ()

Abstract

Any economic activity calls for the exercise of moral judgement. There are some economic activities that actively promote collective benefit as a primary or secondary aim, and there are others that aim to increase the value of a firm. Investment decisions always have collective impact, but collective returns may be ignored or considered less important in company management if the objective is the maximisation of shareholder wealth. The allocative function exercised by banks in their credit activity may take this into account. Some banks nowadays focus on social profile, while others integrate the traditional approach with this new sensibility. But unfortunately banking regulations governing stability and soundness of the financial system make no mention of the social profile. The New Basel Capital Accord was an opportunity to recognise that bank's objectives may not consist only of the maximisation of shareholder wealth. But it was a missed opportunity, in that it gave advantages to traditional commercial banks and not to banks focussing on collective goals. This paper puts forward proposals for integrating the Basel II framework with profiles of collective bank credit policy. Social credit evaluation methods could help to identify those ethical banks which are more successful in meeting collective objectives. A sustainable credit appraisal methodology could have been examined by the Basel Committee and could have incentivated sustainable banking by giving it specific advantages.

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File URL: http://swrwebeco.econ.unipr.it/RePEc/pdf/III_2005-01.pdf
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Bibliographic Info

Paper provided by Department of Economics, Parma University (Italy) in its series Economics Department Working Papers with number 2005-EF01.

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Length: 27 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:par:dipeco:2005-ef01

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Keywords: social banking; alternative banking; socially responsible investing; investments appraisal; Basel II; new capital accord;

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  1. Larry D. Wall & Pamela P. Peterson, 1998. "The choice of capital instruments," Economic Review, Federal Reserve Bank of Atlanta, Federal Reserve Bank of Atlanta, issue Q 2, pages 4-17.
  2. Pringle, John J, 1974. "The Capital Decision in Commercial Banks," Journal of Finance, American Finance Association, American Finance Association, vol. 29(3), pages 779-95, June.
  3. Kim, Daesik & Santomero, Anthony M, 1988. " Risk in Banking and Capital Regulation," Journal of Finance, American Finance Association, American Finance Association, vol. 43(5), pages 1219-33, December.
  4. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 3(1), pages 2-50, October.
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  6. Donald Davis & Kevin Lee, 1997. "A Practical Approach To Capital Structure For Banks," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 10(1), pages 33-43.
  7. Andrea Sironi, 2001. "An Analysis of European Banks' SND Issues and its Implications for the Design of a Mandatory Subordinated Debt Policy," Journal of Financial Services Research, Springer, Springer, vol. 20(2), pages 233-266, October.
  8. João A. C. Santos, 2000. "Bank capital regulation in contemporary banking theory: a review of the literature," BIS Working Papers 90, Bank for International Settlements.
  9. Taggart, Robert A, Jr & Greenbaum, Stuart I, 1978. "Bank Capital and Public Regulation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 10(2), pages 158-69, May.
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Cited by:
  1. D. Tondani, 2006. "Estimating the effects of personal income tax on labour supply in Italy," Economics Department Working Papers, Department of Economics, Parma University (Italy) 2006-EP03, Department of Economics, Parma University (Italy).

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