Banking Overview

How banks use your money

Key green and ethical issues to consider

Finding a green or ethical banking option

Your next steps

How banks use your money

The money that you deposit in your current or savings account doesn't just sit there untouched until you require it again - your bank lends it on to others at interest.

Banks don't just lend money to current account-holding customers either, they lend to large corporations, public institutions and even governments.

As many banks are listed on the stock exchange, they are answerable to external shareholders who expect healthy returns on their investments.

While the Treasury hands down some prohibitions as to who banks can and can't do business with, it still leaves them relatively free to engage with companies that you might not approve of and they use your money to do it.

Would you approve if your bank was lending money to heavy polluting industries or even to an oppressive regime?

Key green and ethical issues to consider

Responsible Lending

The recent global economic downturn is often attributed to the 'sub prime crisis'.

Sub prime lending means giving loans to people who are considered to be in higher risk categories - those more likely to default or who have a poor credit history, for example.

This type of lending is not problematic in itself - credit unions and community development finance institutions regularly lend to sub prime candidates. Instead, irresponsible lending to customers in the sub prime category is the problem.

In the build up to the 'crunch' some financial institutions were lending 100% mortgages (and in some cases more) to people who would not be able to make their repayments in the long term.

Lending responsibly shouldn't be limited to just mortgages - it applies to all loans, big and small, and to the provision of credit cards too. Figures from the Bank of England show that UK residents owe £233bn on credit cards, overdrafts and other loans.

Key questions to ask: Does your bank have responsible lending policies that ensure that its products are targeted in an appropriate manner? And does it provide advice or debt management services to customers who fall into financial difficulty?

Climate Change and the Environment

Banks have an impact in these areas, not just in terms of who they lend to or invest in, but how they run their own operations. It is important to find out what your bank is doing to improve its environmental performance as a business: have they pledged to go carbon neutral for example? Or do they offer any green products to their customers?

Financial Exclusion

There are an estimated two million people in the UK without even the most basic bank account. Is your bank doing anything to address this situation?

For more details see our Financial Exclusion section.

Project Finance

In its most basic form, this type of financing is for companies and governments where lenders are repaid through the revenues generated, i.e. the lender has a vested interest in the success of a project.

Common projects receiving finance are petrochemical and chemical plants, power plants, telecommunications and infrastructure. But do lenders ensure that these projects are conducted in a green or ethical way?

Use our search facility to find out about your bank's policy on the environment, ethical lending, responsibility towards its customers, equal opportunities and other issues.

Finding a green or ethical banking option

Building Societies and Credit Unions

Mutual building societies and credit unions are generally smaller, customer-owned operations that primarily lend to individuals and so are less likely to have the same exposure to issues like the arms trade, for example.

Green and Ethical Alternatives

There are a number of banks and building societies with prominent green and ethical credentials.

• Co-operative Bank: this bank's robust green and ethical policies govern its current accounts, savings and investment products.
• Smile: this internet arm of the Co-operative Bank shares the parent company's ethical policy.
• Triodos Bank: this bank offers green and ethical savings accounts and investments. The bank was established in 1980 in the Netherlands and now has significant operations in the UK.
• Ecology Building Society: this mutual building society offers a range of green savings accounts and mortgage options.
• Charity Bank: this bank invests through loans to benefit charities and communities. It offers saving accounts and cash ISAs to consumers.

You can use the banking section search to find the banks that perform best against our green and ethical criteria.

Your next steps

What do you do now? Check out our guide Next Steps - Banking for information on how to give your bank account a green and ethical makeover.

Useful links to know

The Financial Conduct Authority (FCA) regulates the financial services industry in the UK. The FCA aims to protect consumers, ensure the industry remains stable and promote healthy competition between financial services providers. The FCA has a useful guide to your banking rights. Visit www.fca.org.uk or call the FCA consumer hotline 0800 111 6768 for more information on your rights and the FCA's work.

The Prudential Regulation Authority (PRA) www.bankofengland.co.uk is part of the Bank of England and is responsible for the prudential regulation and supervision of banks, building societies, credit unions, insurers and investment firms. It supervises financial institutions at the level of the individual firm.

The Financial Ombudsman Service www.financial-ombudsman.org.uk is a service set up by the UK Parliament to sort out individual complaints that consumers and financial businesses are not able to sort out themselves.