The basic principle behind a bank is to hold peoples’ savings in an account with the bank for those who have money, and to lend to people who need money in the form of overdrafts and loans, by using money from the depositors’ accounts to fund it. Interest is applied to both sums of money, a charge on the loan / overdraft that the lenders have borrowed, and a reward for depositors leaving their savings with the bank and trusting it with them, obviously the bank takes a cut for the service of sorting out who to lend to, and the risk that comes with such activity as they need to underwrite the risk for their depositors.
First we need to review how banking establishments affect the wider world, to judge whether or not they are ethical in how they engage and change it. There are a few examples that I would now like to share with you in order to show my point. One good example of how banks have helped advance society is by allowing entrepreneurs, inventors, or some form of foundation or collaboration of peoples to create new, exciting and innovative projects, in order to introduce a new product, service or technology.
For instance, say a new start up pharmaceutical company needs to finance the creation of a new drug; this new drug is months from completion and soon to enter medical trials however initial findings look promising, but the business miscalculated the cost of development. Other financing options would be wholly inappropriate, to sell shares to a private inves...
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... the shares, these both mean that the share price will fall as will the quantity demanded.
Should banks have to ask permission from their depositors to invest their money at all, in high risk scenarios or just invest as they do now, by pooling the funds and taking your action of depositing your savings and the permission in order to do so?
These kinds of high risk high pay-out loaning can be effective with extensive knowledge in the field that you are investing in, however firms and markets are so wide, numerous and varied it would be impossible to do an accurate risk assessment for every case.
 Andrew Cave. (2013). Thomas Cook boss: 'We're out of danger zone'. Available: http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/leisure/9934813/Thomas-Cook-boss-Harriet-Green-Were-out-of-danger-zone.html. Last accessed 10/3/2014.
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