ethical banking essay

ORIGINAL RESEARCH article

Assessing the growth of ethical banking: some evidence from spanish customers.

• 1 Department of Spanish and International Economy, Econometrics, History, and Economic Institutions, University of Castilla-La Mancha, Ciudad Real, Spain
• 2 Department of Psychology, University of Castilla-La Mancha, Ciudad Real, Spain
• 3 Department of Political Economy and Public Finance, Economic Statistics, Business, and Economic Policy, University of Castilla-La Mancha, Ciudad Real, Spain

Aristotle, who, having predated Adam Smith by 2000 years, deserves to be recognized as the world’s first economist ( Solomon, 1995 ), distinguished between two different senses of what we call economics : oikonomikos , or household trading, which he approved of and considered essential to the working of any even slightly complex society, and chrematisike , or trade for profit, which he considered selfish and utterly devoid of virtue, calling those who engaged in such practices “parasites”. Of course, consumers do not purchase and invest for solely economic reasons ( Polanyi, 1944 ). Interest in ethics in economics has been the subject of continuous study. In this regard, the recent financial crisis has had not only economic, but also social, psychological, political, and ethical consequences, which have impacted the financial and banking system. Consumers are no longer drawn only by the economic return but also by ethical factors. Ethical banking is on the rise. This paper aims to explain the reasons for the growth in ethical banking and to answer the following questions: can banking consumers-investors change the characterization of the banking system? Can ethical banking gain ground on traditional banking? And is ethical banking really effective? To this end, it will examine the Spanish case, using econometric causal regression models to identify the reasons why consumers decide to invest in ethical banking and determine its role in the Spanish economy.

Introduction

Ethics in finance has long been a subject of study, and today it is being given increasing attention. It seeks to incorporate moral, transparent, fair, and sustainable considerations into the decisions of an ever-growing number of banking consumers. The Goldman Rule that defends the pursuit of profitable opportunities, regardless of the effects on others ( Watkins, 2011 ) appears to be disappearing in general consumption and (albeit to a lesser degree) in the consumption of financial products too.

Formally, ethical banking first emerged in its present-day role as a trader with the founding of the first ethical bank, Triodos Bank, in 1971, following a 1968 study group meeting in Holland. They sought a way to promote a more rational and conscientious way of using money and, finally in 1971, they set up the Stichting Triodos Foundation ( Triodos Bank , 2008–2015 :149).

On the supply side these banks take ethical responsibility into account when determining which products – financial or otherwise – to offer consumers, thereby supplying the market with a responsible offer based on trust in those who receive and manage consumers’ savings ( Green, 1989 ). This means companies are ethically liable and are not protected by limited liability from the consequences of their actions. The role of bankers is to administer funds based on the trust of those who ask them to administer their money, and they should thus loan this money responsibly.

From this perspective, the severe financial crisis, which began in the summer of 2007 in the U.S. real estate sector and continues, even today, to affect the real economy of many developed countries, had not only economic causes, but also psychological, social, political, and ethical ones ( Fernández, 1994 :402). The latter include a number of ethical failures ( Calvo and Mingorance, 2012 ) that both led to the crisis and helped to make it as deep, severe, and enduring as it has been. These failures can be divided into three distinct groups ( Argandoña, 2012 :2). First, there were individual moral failures , as witnessed by the widespread inappropriate, sometimes even criminal, behavior so often on display in the pre-crisis environment of high economic growth, abundant liquidity, low interest rates, and extraordinary opportunities to profit: concealment of information, false advertising, the proliferation of unnecessary transactions to generate higher commissions, inadequate risk assessments, high indebtedness, etc. Second, there were ethical failures related to management or governance , such as the many cases of poor governance and lack of professional competence by directors, senior executives, and analysts at organizations ranging from commercial and investment banks to hedge funds ( Ropero and Hurtado, 2015 ), monolines, rating agencies, supervisory bodies, central banks, and governments. Finally, third, there were social ethics failures , since social conditions were created that encouraged, or at least failed to stop, inappropriate behavior at the personal and organizational levels that notably interfered with the proper functioning of the legal, institutional, and social corrective mechanisms that, in other conditions, would have prevented the moral consequences of such ethically reprehensible behavior.

Clearly, the recent systemic crisis has jeopardized global financial stability by disrupting the efficient allocation of savings and investment – the drivers of economic growth, job creation, progress, and social welfare – and, ultimately, threatening continued public trust in the financial system. Indeed, in recent years, financial systems, including Spain’s, have largely distanced themselves from their traditional role of meeting the real economy’s needs. The severe financial crisis generated a high degree of uncertainty and volatility in the international markets due, first, to the liquidity and solvency problems that many institutions were experiencing. The situation was subsequently compounded by deep economic recessions and sovereign debt crises resulting from the significant debt governments incurred as a consequence of the implementation of fiscal stimuli and measures to support distressed banks in an environment of high external leverage of the private sector ( Argandoña, 2012 ).

In short, the economic and financial crisis has underscored the need to embrace an investment philosophy based on greater transparency, a greater presence of ethical values, and better and broader risk management. Numerous intellectuals have called for the necessary proliferation of ethical and moral principles in the economic and financial world. However, these principles do not arise spontaneously, but rather in response to the problems generated by the magnitude and frequency of business scandals and the various economic and financial crises we have witnessed in recent years, for which there has never been a politically and socially acceptable solution from a neoliberal perspective ( Calvo, 2012 :7). The development of an ethical culture in the financial world has resulted in the establishment of new national and international regulatory standards that help to strengthen the regulation, supervision, and risk management of the global financial system, while at the same time eliminating or reducing the harmful effects of ethical conflicts on society as a whole.

Materials and Methods

Conceptual framework.

The implementation of new national regulatory standards in the financial system, with greater international coordination, has primarily sought to achieve ( Aspachs-Bracons et al., 2010 :5): greater and better capitalization of banks, more stringent control of liquidity and solvency levels, increased transparency in financial agreements and securitizations, and greater control of risk and the level of leverage assumed by the industry. At the same time, it has revealed the need to establish a new multilateral pillar in order to strengthen the regulation, supervision, and risk management of the international financial system, thereby preventing new systemic crises and mitigating their global impact should they occur.

The Current Traditional Banking System

In response to the aforementioned guidelines, the Basel Committee on Banking Supervision developed a comprehensive set of reforms known as Basel III with a view to improving the banking industry’s ability to absorb shocks caused by economic or financial stress, whatever the source, improving banks’ risk management and governance, and strengthening banks’ transparency and disclosures ( Rodríguez de Codes Elorriaga, 2010 ; Bank of International Settlements, 2016 ). As the new capital and liquidity measures significantly tighten bank regulation, a broad transitional period was established, to last from January 1, 2013, to January 1, 2019, so that the changes could be implemented gradually. These measures were part of a broader reform process, arising from the action plan that the G20 approved at the Washington Summit held on November 14 and 15, 2008, to provide global solutions to the crisis and improve international cooperation.

Subsequently, at the G20’s London Summit, held on April 2, 2009 ( El País, 2009 ), in addition to a broad package of measures aimed at restoring growth and employment, strengthening financial institutions, and promoting global trade and investment, the group agreed to establish a new Financial Stability Board (FSB). The FSB would succeed the Financial Stability Forum (FSF) and would consist of the G20 countries, Spain, and the European Commission. Its actions, which it performs in close collaboration with the IMF and the Basel Committee, are mainly aimed at maintaining global financial stability and the openness and transparency of the financial sector. To this end, its members commit to implementing international financial standards and undergoing periodic reviews of their compliance with these obligations ( Banco de España, 2016 ).

Meanwhile, at the European Union level, two new institutions were created ( Field and Moreno García, 2010 :114). The first was the European Systemic Risk Board (ESRB), an independent body responsible for the macroprudential supervision of the Union’s financial system, which aims to identify and prioritize systemic risks and, where applicable, issue recommendations for action and monitor their implementation. The second was the European System of Financial Supervision (ESFS), tasked with microprudential supervision, i.e., the supervision of individual institutions. The ESFS is made up of the national financial supervisors and three new European supervision authorities: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA). These European authorities were set up based on existing European committees in order to harmonize standards, promote the application of European legislation, and, when necessary, help settle disputes between national supervisors.

Finally, in the summer of 2012, the leaders of the European Union undertook to advance on the creation of the European Banking Union (EBU). The EBU first emerged as a step toward financial integration, i.e., toward a single market for financial services and, ultimately, toward the perfection of the construction of the euro by re-establishing a properly functioning monetary policy in the eurozone and restoring confidence in the European banking sector ( Abascal Rojo et al., 2014 ). To achieve these goals of greater and better use of financing sources and higher levels of competition, efficiency, technology, and diversification, the EBU is organized around three main pillars, to which a fourth might be added:

(1) A single supervisory mechanism (SSM), defined as a European financial supervision system made up of the European Central Bank (ECB) and the national supervisors of the eurozone states and of those other countries that choose to join it. Since November 4, 2014, when it assumed its duties, it has been responsible for ensuring the safety and soundness of the European banking system and for increasing financial integration and stability in Europe.

(2) A single resolution mechanism (SRM), approved by the European Parliament on May 15, 2014, whose primary aim is to ensure the efficient resolution of banks facing serious difficulties with minimal costs to taxpayers and the real economy.

(3) A European deposit insurance scheme (EDIS), which, however, remains far from becoming a reality today, despite the approval of a Directive on deposit guarantee schemes (Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes).

(4) A single regulatory system, which, in order to achieve the ultimate goal of a more resilient, transparent, and efficient European banking sector, pursues the more specific goals of providing harmonized prudential rules for EU institutions, unifying the regulatory framework of the EU financial system to complete the single market in financial services, and ensuring uniform application of Basel III.

However, this financial regulation, at both the national and supranational level, has generally proved insufficient to prevent the numerous ethical conflicts that arise in the world of finance. This is mainly due to the great complexity of financial activities, which facilitates avoidance of the undertaken obligations. Consequently, the various players in these markets must also engage in self-regulation. This can be pursued, first, within the financial institutions themselves, through the establishment of codes of ethics or of conduct, which have enabled significant improvements in institutional transparency, and through a commitment to corporate social responsibility, with the aim of managing the impact these institutions’ activities have on their customers, employees, shareholders, local communities, the environment, and society at large. Second, it can be achieved through appropriate financial training and education that equips the recipients of the training with the knowledge, skills, behavior, values, and aptitudes they need to make sensible and informed financial decisions, in addition to leaving them better positioned to deal with the basic financial challenges they will encounter over their lives. Indeed, to paraphrase Melé, “Let us improve regulation and its functioning, but let us also consider improving people’s culture and education. This latter may be more expensive, but it is also more enduring” ( Melé,, 2009 :64).

Current Ethical Banking

Recent years have seen a proliferation of new forms of financial business that seek to make economic profitability compatible with respect for human rights and the environment. One such business is ethical banking, which invests only in projects offering value added to society, mainly from an educational, cultural, environmental, and/or social perspective. In this context, ethics is understood as a science aimed at steering human action in a rational direction ( Cortina, 1994 :17). Many papers have looked at ethical banking and demonstrated the important role it plays as an independent, differentiated financing activity ( Lynch, 1991 ; Cowton and Thompson, 2001 ; Alsina, 2002 ; Fergeson, 2004 ; Barbu and Vintila, 2007 ; Buttle, 2008 ; Baranes, 2009 ; Cowton, 2010 ).

In the economic and financial arena, ethics must fulfill the important mission of ensuring equal access by agents to all types of goods and services. To achieve this, the financial system must promote the achievement of monetary and financial stability and effectively contribute to it, in accordance with its purpose of optimizing the use of financial resources, by channeling the savings generated by surplus spending units to borrowers or deficit spending units ( Calvo and Martín de Vidales, 2014 ; Calvo et al., 2014 :1). In short, it must facilitate real or productive economic activity and foster overall rather than just individual well-being, which is the first principle of financial ethics ( Camacho Laraña, 1996 :35).

To date, the concern for ethics in the financial system has led to two main developments: the establishment of ethical banks and the launch of ethical or socially responsible investment (SRI) funds, that is, funds in which certain social values (usually related to environmental quality and quality of life) are given precedence over strictly financial ones (risk-return). The ethical banking model could be included in the market for SRI funds. Ethical banks manage their customers’ money, allocating it to investments and projects based on environmental, social, and governance (ESG) criteria with the aim of creating something of social utility for the surrounding community, above and beyond the mere pursuit of profit. This social purpose refers to the social return on the invested capital and to the social responsibility of the investor ( Spansif, 2013 :6; Benito Hernández, 2014 ).

Europe has had several experiences with ethical banks, which have positioned themselves at the epicenter of some of the Old Continent’s largest economies, especially in innovative sectors with high growth potential. Some have joined the Global Alliance for Banking on Values (GABV), established in 2009 with a view to examining the financial dynamics of capital and the systems for measuring the impact on the overall, environmental, and financial development of sustainable banks. In addition, the GABV established, for the first time, a precise definition of sustainable banking, endorsing the following principles ( Global Alliance for Banking on Values [GABV], 2012 ):

- A triple bottom line (social, environmental, and economic) approach at the heart of the business model. To achieve a social return, ethical banks must finance economic activities that offer social value added and eschew investments in speculative projects or companies meeting negative criteria. Achieving an economic return (i.e., making a profit) requires good bank management. Since ethical banks do not usually distribute profits to shareholders, and, when they do, they do so only in very limited amounts, any profit should be residual ( Green, 1989 ; Lynch, 1991 ; Cowton and Thompson, 2001 ; Alsina, 2002 ; Fergeson, 2004 ).

- Grounded in communities, serving the real economy, and enabling new business models to meet the needs of both.

- Long-term relationships with clients and a direct understanding of their sectors of economic activity and the risks involved.

- Long-term goals, self-sustaining, and resilient to outside disruptions.

- Transparent and inclusive governance.

- All these principles should be embedded in the bank’s culture.

Recognition of the institution as a bank or credit institution by the national authorities is essential ( Iturrioz et al., 2005 ; Valor, 2005 ; Valor et al., 2007 ). This dimension is important to distinguish between ethical banks and other financial experiences, such as solidarity programs or foundations that depend on banks but do not operate as real financial institutions. Some traditional banks have foundations that might in and of themselves meet ethical criteria, but are not, strictly speaking, credit institutions, since they depend on the bank’s business, which probably has a different kind of social impact. Ethical commitments must thus affect all aspects of the bank and not just part of it or its activities ( San-Jose et al., 2011 :152–153).

Why Do Consumers Choose Ethical Banking? An Analysis of the Spanish Case

In Spain, investing according to ethical, sustainability, and/or social responsibility criteria remains considerably less developed than in many northern European countries, despite having become, in recent years, one of the levers for advancing toward a more sustainable economic model able to overcome the effects of the crisis. Indeed, this form of investment remains a niche type of investment dominated by a small number of large institutional investors, which together account for 97% of the assets managed according to ESG criteria ( Novaster, 2015 :3). Of these, the most active participants are employment pension plans, which are the most important drivers of SRI in Spain, as SRI retail funds have only a very marginal presence, due both to the sparse selection currently offered by the main financial institutions and a lack of knowledge on the part of private investors.

Accordingly, no ethical banks have yet been founded in the Spanish financial system. Therefore, the influence of this type of ethical action can be said to be limited to just three fronts. The first is the launch by some traditional banks of financing lines based on the granting of microcredits, mainly targeted at entrepreneurs, personal and family development projects, microenterprises seeking to meet social needs, and ecologically sustainable or environmentally friendly projects. CaixaBank, BBVA, and the ICO have been quite active in this business segment for many years. The second is the opening in Spain of branches of different ethical banks, specifically, Triodos Bank and Fiare Banca Etica. Finally, the third is the marketing by organizations that are not financial institutions – mainly, service cooperatives – of savings products and ethical financing. In this sphere, the initiatives undertaken by Oikocredit and Coop57 stand out. The most important aspects of the latter four institutions are explained below.

(1) Triodos Bank. Triodos Bank was established in the Netherlands in 1980, following the creation of the Triodos Foundation in 1971, as a way to channel donations and loans to companies excluded from the financial sector. Since then, Triodos has grown and expanded its original approach. Through its extensive European branch network (it currently also has operations in Belgium, the UK, Spain, and Germany), it finances companies, institutions, and projects that add clear social, environmental, and cultural value with the support of depositors and investors who wish to encourage socially responsible businesses and organizations and a sustainable society. To this end, its business model seeks to strike a balance between people’s quality of life, care of the planet, and economic profit, what is known as the triple bottom line approach, or the ‘three Ps’ (People, Planet, Profitability) ( Triodos Bank , 2008–2015 ).

(2) Fiare Banca Ética. Fiare Banca Ética is the result of the merger of two ethical finance projects: Banca Popolare Etica, a cooperative bank founded in the city of Padua (Italy) in 1999 from volunteer associations and cooperatives from northeastern Italy, and the Fiare Foundation, established in 2003 in the Basque Country to build a movement of active citizenry with a view to laying the foundations for ethical and cooperative banking in Spain. In 2005, the two institutions signed an agent agreement, and financial intermediation began in Spain on October 31 that year. In short, this institution was founded to serve as a tool to promote social transformation, as its members’ savings deposits allow it to finance projects linked to the social welfare system (especially health and social services, social housing, and social microcredits), energy efficiency, the environment, local agriculture, international cooperation, social and cultural facilitation, and fair trade.

(3) Oikocredit. According to Ban Ki-Moon, Secretary-General of the United Nations, service cooperatives “are a reminder to the international community that it is possible to pursue both economic viability and social responsibility” ( Oikocredit , 2014–2015a ,b). In this business segment, the international financial cooperative Oikocredit, originally called the Ecumenical Development Cooperation Society (EDCS), plays a prominent role. It was founded in 1975 by the World Council of Churches with the aim of offering religious institutions an alternative investment instrument targeted at disadvantaged people. Despite these origins, Oikocredit’s investment criteria were never based on religious principles. Today, with the same goal of achieving inclusive finance, it has a decentralized structure that reaches from its headquarters in Amersfoort (Netherlands) to much of the planet, financing 809 organizations in 69 countries. In Spain, it operates through three support associations in the Basque Country (since 1997), Catalonia (since 2000), and Seville (since 2007), providing loans and investment to microfinance institutions and fair trade organizations, agricultural cooperatives, and small to medium-sized enterprises with a social justice and environmental dimension, that is, organizations that contribute to sustainably improving the quality of life of low-income earners and communities.

(4) Coop 57. Finally, attention should be called to the initiative carried out in this sphere by the ethical and charitable financial services cooperative Coop57, whose activity began in Catalonia with workers’ struggle to keep their jobs at the Editorial Bruguera publishing house. A group of these workers used part of the compensation they had received in the lay-off to create a fund to promote economic projects aimed at creating quality jobs, especially through the application of cooperative models. With this fund, Coop57 was founded, on June 19, 1995. Although at first it was closely linked to associationist cooperativism, it gradually expanded its social base to include other types of social and solidarity economy organizations. Indeed, in 2005, Coop57 adopted a networked growth strategy throughout Spain based on the interest that it had stirred in other regions of the country, which used the business model and legal and technical structure of the parent company. Currently, in addition to its headquarters in Barcelona, it has regional sections with their own management and participation structures in Aragon (since 2005), Madrid (since 2006), Andalusia (since 2008), and Galicia (since 2009). Its main goal is to collect people’s savings in order to channel them toward the financing of social and solidarity economy organizations that promote stable quality employment, foster cooperativism, associationism, and solidarity in general, and promote sustainability and food and energy sovereignty, based on ethical and charitable principles. In short, although Coop57 carries out a financial activity, it does so not in pursuit of an economic goal, but rather a social one: the financing of projects that add value to their communities and society as a whole.

Although the presence of ethical banking operations in Spain remains fairly small, numerous experts have argued that the silent revolution of ethical, social, and charitable finance has begun ( Sanchis, 2016 ) and that it is having a positive impact on growth.

First of all, it is important to consider that the lack of homogeneous data sources for this sector, statistical gaps, and the absence of a uniform nomenclature for both the activities themselves and the purpose thereof at the analyzed institutions ( Coop57 , 2007–2015 ; Fiare Banca Ética , 2008–2015 ; Triodos Bank , 2008–2015 ; Oikocredit , 2014–2015a ,b) require an initial approximation of the sector in order to measure the impact of this banking model on the Spanish economic system (Supplementary Data Sheet 1). For the empirical research, the whole econometric models were technically validated, and all structural and random hypotheses were supported.

The first aim of the research was to measure the development of ethical banking in the Spanish financial sector compared to traditional banking. To this end, all ethical banking in Spain was represented through the analysis of two variables, which were selected on the basis of relevance and ease of comparison with traditional banking: deposits and loans. In order to ensure conceptual consistency and enable the comparison of ethical banking and traditional banking, the heading “deposits” includes contributions that can be used to fund grants and projects (from own funds to deposits and lending investments), while the heading “loans” is the sum of allocated amounts (credits, loans, social projects, etc.).

Figure 1 shows how, following the onset of the financial crisis in 2007 and the subsequent reform of the Spanish banking system, loans declined faster than managed deposits in the traditional banking segment. In contrast, in the ethical banking segment, growth in loans outstripped deposit growth until 2012 (see Figure 2 ). Since then, the trend has reversed, with loans showing only modest linear growth in contrast with soaring deposits.

FIGURE 1. Deposits (DTB) and loans (LTB) at traditional banks (€ billion). DTB, deposits at traditional banks; LTB, loans at traditional banks.

FIGURE 2. Deposits (DEB) and loans (LEB) at ethical banks (€ thousand). DEB, deposits at ethical banks; LEB, loans at ethical banks.

Figure 3 shows the 2011–2015 series. As in prior years these indices would yield very high rates, making it impossible to compare the two ratios, so in order to solve this problem, an index number were calculated. A comparative study of deposits and loans shows that, in traditional banking, the two headings have behaved roughly the same. In contrast, ethical banking has grown faster, with growth in customer deposits being particularly strong.

FIGURE 3. Deposits and loans at TBs and EBs (Index: 2011 = 100).

Finally, a comparative ratio of loans and deposits for both types of banks, reflecting both of the preceding points, since 2007 shows that the banking system in general has become more conservative (see Figure 4 ). In traditional banking, not all existing available funds are allocated to loans. The same has been true in ethical banking since 2012, but in a much more pronounced way.

FIGURE 4. (Loans/Deposits) in TB and EB.

Both for the comparative analysis and to illustrate the change in behavior that has led consumers to trust ethical banks, several simple but fairly representative econometric models were considered.

First, a model was proposed to analyze the recent evolution of ethical banking, taking consumer behavior in the sector into account (Table 1 ).

TABLE 1. Econometric model explaining the evolution of loans granted by ethical banks.

In other words, the economic causes that lead consumers-investors to increase the volume of ethical banking were proposed empirically.

In addition to transparency and the social reasons discussed above, certain economic and financial factors have significantly helped to drive ethical banking business in recent years and could serve as an initial hypothesis.

1. In the Spanish economy, depositors (investors) primarily seek returns in:

(a) securities in primary and secondary markets (stock exchange),

(b) interest on deposits in traditional banking and other financial investments (funds), and,

(c) the growing productive economic sector.

2. In Spain, until 2007, the construction sector was a refuge for investors, offering very high returns. However, that year, real estate activity collapsed. The EURIBOR, as a reference rate, likewise began to decline beginning in 2007, making it less attractive to investors.

3. The stock index is also not a particularly obvious choice for investors. It began to fall in 2008, although with ups and downs. It rose somewhat in 2009, and then fell again from 2010 to 2013, when it rallied slightly, before declining again in 2014, reaching 2004 levels in 2015.

4. It was precisely in 2007 that ethical banking began its upward trend. Possibly, many depositors with financing capacity may have chosen to seek a return in this sector given the social characteristics and transparency of this type of banking.

In light of the above, the paradigm was obtained with the following econometric model (see Table 1 and Figure 5 ), where:

FIGURE 5. Fit of the explanatory model of loans granted by ethical banks.

LEB: Loans granted by ethical banks (€ thousand, current prices).

DEB: Deposits at ethical banks (€ thousand, current prices).

EUR: EURIBOR.

SI: Stock index.

F06: Dummy variable that corrects a technical problem in the structural change in the model.

In conclusion, ethical banking provides financing based on the level of deposits (direct relationship). At the same time, the model (with a fit of 98.38%) shows that the situation of declining interest rates and a falling stock index justified the increase in these loans, subject to deposit levels.

The next question is whether this consumer choice is favorable or unfavorable to the country’s economic system. The following model of the banking sector is revealing in this regard. It shows the importance of ethical banking and traditional banking to GDP, including both the capital input (through deposits at traditional and ethical banks) and the labor input (from the complementary perspective of the unemployment rate or UR). Considering the justification of the proposed specification, as a function of aggregate production (GDP), and the inputs of capital (LEB, LTB) and labor (UR), yields the following econometric model (see Table 2 and Figure 6 ):

TABLE 2. Econometric model of inputs (capital and labor) in the Spanish GDP.

FIGURE 6. Fit of inputs (capital and labor) with the evolution of the Spanish GDP.

GDP: Gross Domestic Product (€ million, current prices).

LTB: Loans granted by traditional banks (€ billion, current prices).

  UR: Unemployment rate (%).

F08: Dummy variable correcting for technical problems in the model’s structural change.

The model conforms to economic theory and the signs are consistent with macroeconomic performance. The levels of loans granted by both ethical and traditional banks (capital input) positively impacted the growth of the Spanish economy. As expected, the unemployment rate (labor input) negatively impacted growth, i.e., the higher the unemployment rate, the lower the economic growth.

Ethical consumption is a growing movement, and consumers are increasingly committed to ethical factors when forming opinions about products and making purchase decisions ( Shaw and Shui, 2002 ; De Pelsmacker et al., 2005 ). However, several studies have revealed the existence of a possible gap between purchase intentions and actual purchasing behavior (ethical purchasing gap), showing that ethically conscientious consumers rarely shop ethically ( Bray et al., 2011 ; Goyal and Joshi, 2011 ; Papaoikonomou et al., 2011 ; Carrington et al., 2014 ).

The ethical issues involved in banking practices have become an important aspect that the nations of the world must take into consideration, especially in light of the incessant bank failures and ensuing loss of customers’ deposits ( Asikhia, 2016 ). However, the ethical banking sector has grown, not only as a result of the bad banking and financial practices of recent years, but also because of the confluence of the economic crisis, banking reform, declining returns for investors through traditional channels, and, especially, the ethical and social commitment that has recently begun to emerge in many activities.

Based on the preceding empirical analysis, we can offer an initial response to the questions posed at the start of this paper.

1. Can bank consumers-investors change the characterization of the banking system?

By standardizing the coefficients 1 of the first estimated model (Table 1 ), we can see the unit effect of each explanatory variable (deposits at ethical banks, Euribor, and stock index) on the endogenous variable (loans granted by ethical banks), giving:

Although deposits at ethical banks ( β ^ EBD * = 0.41055 ) explain the behavior of ethical banking loans to a greater degree than either the Euribor ( β ^ EUR * = 0.4016 ) or the stock index does alone, they do so in a smaller proportion and with the inverse sign compared to the Euribor and stock index taken together ( β ^ SI * = 0.09807 ) . Therefore, when both the Euribor and the stock index increase, deposits at ethical banks will decrease due to the greater profitability of deposits at traditional banks, resulting in a decline in ethical banking loans at high values.

In short, it can be concluded that, if the Euribor continues to fall as it has to date, banking consumers-investors could indeed change the characterization of the banking system by choosing the investments offered by ethical banks through deposits.

2. Can ethical banking gain ground on traditional banking? Is it really effective?

Interpreting the results of the second estimated model (Table 2 ) to determine the extent to which each variable (loans granted by ethical banks, loans granted by traditional banks, and the unemployment rate) contributes to the evolution of GDP, and again standardizing the coefficients, yields:

In this case, the unemployment rate ( β ^ UR * = 0.794931 ) explains GDP behavior to a greater extent than loans, whether granted by ethical or traditional banks ( β ^ LEE * = 0.7791 , β ^ LTB * = 0.69925 ) .

However, when the impact of loans is considered in isolation, loans granted by ethical banks explain GDP behavior to a greater degree, although the difference is not huge (11.42%). This means that an increase in ethical banking loans will be more effective for GDP growth than an increase in traditional banking loans, as long as the Euribor and stock index hold steady or decline (conclusion obtained and discussed from Table 1 ).

In sum, if the Euribor continues to register low values, as it has to date, ethical banking could gain ground on traditional banking, as it is more effective at increasing GDP.

3. Are the principles of ethical banking fulfilled?

Figures 1 – 5 could cast doubt on whether ethical banking faithfully fulfills some of its basic principles in terms of its “social and environmental bottom lines” and operating “at the service of the real economy”.

The foregoing analysis showed that deposits managed by ethical banks are growing at a far higher rate than the loans they grant. At first glance, this finding poses a twofold question regarding the sector’s future viability and whether it may not, in the long term, conform more closely to the traditional banking business model.

However, the existing gap between deposits and loans may be justified if ethical banks are allocating the financing collected through deposits to corporate purposes that they share with traditional banks (e.g., hiring staff, the financing of new physical branches of institutions in this business segment, etc.). In that case, it would make realistic economic sense, as a sector that creates jobs and capital input, thereby generating more efficient and sustained economic growth. It must be remembered that the primary labor of this type of banking is the financing, through financial intermediation, of social and solidarity economy projects that promote, among other things, the creation of stable, quality employment, sustainable development, food and energy sovereignty, the social inclusion and employment of vulnerable groups, international cooperation, fair trade, culture, education, and civic engagement.

Therefore, in addition to increasing the economic bottom line, as traditional banking does, by creating jobs and wealth through the acquisition or leasing of office space, it would continue to ensure the sustainability and social purposes that characterize its ideology, resulting in an improvement in people’s quality of life and better use of the available environmental resources.

However, any conclusion regarding the consistency of ethical banking will need to await a time when both the Euribor and stock index are rising.

Author Contributions

All authors listed, have made substantial, direct and intellectual contribution to the work, and approved it for publication.

Conflict of Interest Statement

The authors declare that the research was conducted in the absence of any commercial or financial relationships that could be construed as a potential conflict of interest.

Acknowledgments

This work was funded by the Spanish Ministry of Economy and Competitiveness through Research Project ECO2014-59688-R, as part of the National Program for Research, Development, and Innovation Oriented toward Societal Challenges, under the 2013–2016 National Research, Technology, and Innovation Plan and besides was funded by financial assistance to Research Group of Commercial Observatory of Innovation in Distribution by University of Castilla-La Mancha.

Supplementary Material

The Supplementary Material for this article can be found online at: http://journal.frontiersin.org/article/10.3389/fpsyg.2017.00782/full#supplementary-material

β ^ * ( X j ) = β ^ ( X j ) • ( S D X j / S D Y ) ; where

- SD is the standard deviation of the variable.

- X: explanatory or exogenous variable, and

- Y: variable to be explained or endogenous variable.

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Keywords : ethical banking, traditional banking, banking consumers, deposits and loans

Citation: Callejas-Albiñana FE, Martínez-Rodríguez I, Callejas-Albiñana AI and de Vidales-Carrasco IM (2017) Assessing the Growth of Ethical Banking: Some Evidence from Spanish Customers. Front. Psychol. 8:782. doi: 10.3389/fpsyg.2017.00782

Received: 08 March 2017; Accepted: 27 April 2017; Published: 24 May 2017.

Reviewed by:

Copyright © 2017 Callejas-Albiñana, Martínez-Rodríguez, Callejas-Albiñana and de Vidales-Carrasco. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY) . The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.

*Correspondence: Fernando E. Callejas-Albiñana, [email protected]

Disclaimer: All claims expressed in this article are solely those of the authors and do not necessarily represent those of their affiliated organizations, or those of the publisher, the editors and the reviewers. Any product that may be evaluated in this article or claim that may be made by its manufacturer is not guaranteed or endorsed by the publisher.

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Ethics and Ethical Practices in Banks: A Review of Literature

2020, International Journal of Business Ethics in Developing Economies

This paper presents a comprehensive review of literature on ethics, ethical issues, and ethical practices in the banking industry. This review paper will help in understanding ethics and ethical practices in banks, and will build a roadmap for future research in this area. Articles are downloaded from PROQUEST, Researchgate, EBSCO, and other online sources. Keywords used for search were banks and ethics, ethics in banks, ethical issues in banks, factors of bank ethics, and bank failure and ethics. The review of literature revealed that there are numerous ethical issues prevalent in the banking industry, like lack of proper ethics training, trust and transparency issues, growing pressure of competition, complexity of banking operations, issue of money laundering, and so on. It is observed that factors that affect ethics in banks include internal behaviour, cost leveraging, value leveraging, ethical orientation, ethical lending, ethical commitment, placement of assets, ethical ideology, bank's code of conduct, and so on.

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TikTok challenges U.S. ban in court, calling it unconstitutional

Bobby Allyn

TikTok's suit is in response to a law passed by Congress giving ByteDance up to a year to divest from TikTok and find a new buyer, or face a nationwide ban. Kiichiro Sato/AP hide caption

TikTok's suit is in response to a law passed by Congress giving ByteDance up to a year to divest from TikTok and find a new buyer, or face a nationwide ban.

TikTok and its parent company on Tuesday filed a legal challenge against the United States over a law that President Biden signed last month outlawing the app nationwide unless it finds a buyer within a year.

In the petition filed in the Court of Appeals for the District of Columbia Circuit, the company said the legislation exceeds the bounds of the constitution and suppresses the speech of millions of Americans.

"Banning TikTok is so obviously unconstitutional, in fact, that even the Act's sponsors recognized that reality, and therefore have tried mightily to depict the law not as a ban at all, but merely a regulation of TikTok's ownership," according to the filing.

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Yet lawyers for TikTok say the law offers the company a false choice, since fully divesting from its parent company, ByteDance, is "simply not possible: not commercially, not technologically, not legally," the challenge states. "And certainly not on the 270-day timeline required by the Act."

Anupam Chander, a law professor at Georgetown University who specializes in technology regulations, said if TikTok loses this legal fight, it will likely shut down in the U.S.

"The problem for TikTok is that they have a parent company that has these obligation in China, but they're trying to live by free speech rules by the United States," Chander said in an interview. "The question is whether American courts will believe that that's even possible."

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Possible TikTok ban could be 'an extinction-level event' for the creator economy

According to the filing, the law is based on "speculative and analytically flawed concerns about data security and content manipulation — concerns that, even if grounded in fact, could be addressed through far less restrictive and more narrowly tailored means."

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TikTok said Congress ignored less restrictive ways of addressing the government's national security concerns.

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"You can't really create a TikTok U.S., while having a different company manage TikTok Canada," Chander said in an interview. "What you're doing essentially is creating a rival between two TikToks," he said. " It may be better to take your marbles out of the United States and hope to make money outside of the U.S., rather than sell it at a fire-sale price."

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Congress has never before passed legislation that could outright ban a wildly popular social media app, a gesture the U.S. government has criticized authoritarian nations for doing.

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Worries also persist in Washington that Beijing could influence the views of Americans by dictating what videos are boosted on the platform. That concern has only become heightened seven months before a presidential election.

Yet the fears so far indeed remain hypothetical.

There is no publicly available example of the Chinese government attempting to use TikTok as an espionage or data collection tool. And no proof that the Chinese government has ever had a hand over what TikTok's 170 million American users see every day on the app.

TikTok says it offers U.S. a plan that would shut app down if it violated agreement

TikTok, for its part, says it has invested $2 billion on a plan, dubbed Project Texas, to separate its U.S. operation from its Chinese parent company. It deleted all of Americans' data from foreign servers and relocated all of the data to servers on U.S. soil overseen by the Austin-based tech company Oracle.

While the plan was intended to build trust with U.S. lawmakers and users, reports surfaced showing that data was still moving between staff in California and Beijing.

In the filing on Tuesday, TikTok said it submitted an agreement to the Committee on Foreign Investment in the United States, which has been probing the app for five years, that would allow the U.S. to suspend TikTok if it violated terms set forth in a national security plan.

But, lawyers for TikTok say, the deal was swept aside, "in favor of the politically expedient and punitive approach," the petition states.

Mnuchin claims he will place a bid to buy TikTok, even though app is not for sale

Despite the new law giving TikTok the ultimatum of selling or being shut down, there are many questions around how the app could even be bought by another company or group of investors.

Former Treasury Secretary Steven Mnuchin told NPR on Monday, he is planning to assemble a group of investors to try to purchase TikTok without the app's algorithm.

Mnuchin, who declined to answer additional questions, said in between sessions at the Milken Institute Global Conference in Los Angeles that the proposal to buy the app is still in the works, but he would not say when it would be formally submitted.

One major obstacle in any possible sale of TikTok is a glaring problem: The app is not for sale.

TikTok Ban Averted: Trump Gives Oracle-Walmart Deal His 'Blessing'

Despite the new law in the U.S., ByteDance says it does not intend to let go of the service. Furthermore, winning the support of China would be necessary, and officials in Beijing are adamantly against any forced sale.

In 2020, amid the Trump administration's clamp down on the app, China added "content-recommendation algorithms" to its export-control list, effectively adding new regulations over how TikTok's all-powerful algorithm could ever be sold.

ByteDance, not TikTok, developed and controls the algorithm that determines what millions see on the app every day. The technology has become the envy of Silicon Valley, and no U.S. tech company has been able dislodge TikTok's firm hold on the short-form video market. Experts say key to its success is its highly engaging and hyper-personalized video-ranking algorithm.

The algorithm, which involves millions of lines of software code developed by thousands of engineers over many years, cannot be easily transferred to the U.S., even if China did allow it, TikTok's challenge states.

Lawyers for TikTok argue that "any severance [of the algorithm] would leave TikTok without access to the recommendation engine that has created a unique style and community that cannot be replicated on any other platform today."

Ethics in Banking

The Role of Moral Values and Judgements in Finance

• © 2015

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Part of the book series: Palgrave Macmillan Studies in Banking and Financial Institutions (SBFI)

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Table of contents (8 chapters)

Front matter, approaching banking from a philosophical perspective, global credit crisis, views of banking ethics, the idea of ethics in banking: self-conceptions and critique, ethical understanding in the banking sector, self-governance and state regulation, preliminary conclusions, harsh realities and critique of banking ethics, the sub-prime crisis: an ethical failure, impact of securitization, conclusions, back matter.

• sub-prime crisis
• global financial crisis
• banking crisis
• business ethics
• corporate finance
• deregulation
• risk management
• investments and securities

About this book

About the author, bibliographic information.

Book Title : Ethics in Banking

Book Subtitle : The Role of Moral Values and Judgements in Finance

Authors : Jes Villa

Series Title : Palgrave Macmillan Studies in Banking and Financial Institutions

DOI : https://doi.org/10.1057/9781137340283

Publisher : Palgrave Macmillan London

eBook Packages : Palgrave Economics & Finance Collection , Economics and Finance (R0)

Copyright Information : Jes Villa 2015

Hardcover ISBN : 978-1-137-34340-6 Published: 17 September 2015

eBook ISBN : 978-1-137-34028-3 Published: 22 September 2015

Series ISSN : 2523-336X

Series E-ISSN : 2523-3378

Edition Number : 1

Number of Pages : XI, 212

Topics : Banking , Investments and Securities , Business Ethics , Economics, general

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The Protesters and the President

Over the past week, thousands of students protesting the war in gaza have been arrested..

This transcript was created using speech recognition software. While it has been reviewed by human transcribers, it may contain errors. Please review the episode audio before quoting from this transcript and email [email protected] with any questions.

From “New York Times,” I’m Michael Barbaro. This is “The Daily.”

Free, free, Palestine!

Free, free Palestine!

Free, free, free Palestine!

Over the past week, what had begun as a smattering of pro-Palestinian protests on America’s college campuses exploded into a nationwide movement —

United, we’ll never be defeated!

— as students at dozens of universities held demonstrations, set up encampments, and at times seized academic buildings.

[PROTESTERS CLAMORING]:

response, administrators at many of those colleges decided to crack down —

Do not throw things at our officers. We will use chemical munitions that include gas.

— calling in local police to carry out mass detentions and arrests. From Arizona State —

In the name of the state of Arizona, I declare this gathering to be a violation of —

— to the University of Georgia —

— to City College of New York.

[PROTESTERS CHANTING, “BACK OFF”]:

As of Thursday, police had arrested 2,000 students on more than 40 campuses. A situation so startling that President Biden could no longer ignore it.

Look, it’s basically a matter of fairness. It’s a matter of what’s right. There’s the right to protest, but not the right to cause chaos.

Today, my colleagues Jonathan Wolfe and Peter Baker on a history-making week. It’s Friday, May 3.

Jonathan, as this tumultuous week on college campuses comes to an end, it feels like the most extraordinary scenes played out on the campus of the University of California Los Angeles, where you have been reporting. What is the story of how that protest started and ultimately became so explosive?

So late last week, pro-Palestinian protesters set up an encampment at the University of California, Los Angeles.

From the river to the sea!

Palestine will be free!

Palestine —

It was right in front of Royce Hall, which I don’t know if you are familiar with UCLA, but it’s a very famous, red brick building. It’s on all the brochures. And there was two things that stood out about this encampment. And the first thing was that they barricaded the encampment.

The encampment, complete with tents and barricades, has been set up in the middle of the Westwood campus. The protesters demand —

They have metal grates. They had wooden pallets. And they separated themselves from the campus.

This is kind of interesting. There are controlling access, as we’ve been talking about. They are trying to control who is allowed in, who is allowed out.

They sort of policed the area. So they only would let people that were part of their community, they said, inside.

I’m a UCLA student. I deserve to go here. We paid tuition. This is our school. And they’re not letting me walk in. Why can’t I go? Will you let me go in?

We’re not engaging with that.

Then you can move. Will you move?

And the second thing that stood out about this camp was that it immediately attracted pro-Israel counterprotesters.

And what did the leadership of UCLA say about all of this, the encampment and these counterprotesters?

So the University of California’s approach was pretty unique. They had a really hands-off approach. And they allowed the pro-Palestinian protesters to set up an encampment. They allowed the counterprotesters to happen. I mean, this is a public university, so anyone who wants to can just enter the campus.

So when do things start to escalate?

So there were definitely fights and scuffles through the weekend. But a turning point was really Sunday —

[SINGING IN HEBREW]:

— when this group called the Israeli American Council, they’re a nonprofit organization, organized a rally on campus. The Israeli American Council has really been against these pro-Palestinian protests. They say that they’re antisemitic. So this nonprofit group sets up a stage with a screen really just a few yards from the pro-Palestinian encampment.

We are grateful that this past Friday, the University of California, stated that they will continue to oppose any calls for boycott and divestment from Israel!

[PROTESTERS CHEERING]

And they host speakers and they held prayers.

Jewish students, you’re not alone! Oh, you’re not alone! We are right here with you! And we’re right here with you in until —

[WORDLESS SINGING]:

And then lots of other people start showing up. And the proximity between protesters and counterprotesters and even some agitators, makes it really clear that something was about to happen.

And what was that? What ended up happening?

On Monday night, a group of about 60 counterprotesters tried to breach the encampment there. And the campus police had to break it up. And things escalated again on Tuesday.

They stormed the barricades and it’s a complete riot.

[PROTESTER SHOUTING]:

Put it down! Put it down! Put it down!

I went to report on what happened just a few hours after it ended.

And I spoke to a lot of protesters. And I met one demonstrator, Marie.

Yeah, my first name is Marie. M-A-R-I-E. Last name, Salem.

And Marie described what happened.

So can you just tell me a little bit about what happened last night?

Last night, we were approached by over a hundred counterprotesters who were very mobilized and ready to break into camp. They proceeded to try to breach our barricades extremely violently.

Marie said it started getting out of hand when counterprotesters started setting off fireworks towards the camp.

They had bear spray. They had Mace. They were throwing wood and spears. Throwing water bottles, continuing fireworks.

So she said that they were terrified. It was just all hands on deck. Everyone was guarding the barricades.

Every time someone experienced the bear spray or Mace or was hit and bleeding, we had some medics in the front line. And then we had people —

And they said that they were just trying to take care of people who were injured.

I mean, at any given moment, there was 5 to 10 people being treated.

So what she described to me sounded more like a battlefield than a college campus.

And it was just a complete terror and complete abandonment of the university, as we also watched private security watch this the entire time on the stairs. And some LAPD were stationed about a football field length back from these counterprotesters, and did not make a single arrest, did not attempt to stop any violence, did not attempt to get in between the two groups. No attempt.

I should say, I spoke to a state authorities and eyewitnesses and they confirmed Marie’s account about what happened that night, both in terms of the violence that took place at the encampment and how law enforcement responded. So in the end, people ended up fighting for hours before the police intervened.

[SOMBER MUSIC]

So in her mind, UCLA’s hands-off approach, which seemed to have prevailed throughout this entire period, ends up being way too hands off in a moment when students were in jeopardy.

That’s right. And so at this point, the protesters in the encampment started preparing for two possibilities. One was that this group of counterprotesters would return and attack them. And the second one was that the police would come and try to break up this encampment.

So they started building up the barricades. They start reinforcing them with wood. And during the day, hundreds of people came and brought them supplies. They brought food.

They brought helmets, goggles, earplugs, saline solution, all sorts of things these people could use to defend themselves. And so they’re really getting ready to burrow in. And in the end, it was the police who came.

[PROTESTERS SHOUTING]:

So Wednesday at 7:00 PM, they made an announcement on top of Royce Hall, which overlooks the encampment —

— administrative criminal actions up to and including arrest. Please leave the area immediately.

And they told people in the encampment that they needed to leave or face arrest.

[DRUM BEATING]: [PROTESTERS CHANTING]

And so as night falls, they put on all this gear that they’ve been collecting, the goggles, the masks and the earplugs, and they wait for the police.

[DRUM BEATING]:

And so the police arrive and station themselves right in front of the encampment. And then at a certain point, they storm the back stairs of the encampment.

[PROTESTERS CHANTING]:

And this is the stairs that the protesters have been using to enter and exit the camp. And they set up a line. And the protesters do this really surprising thing.

The people united!

They open up umbrellas. They have these strobe lights. And they’re flashing them at the police, who just slowly back out of the camp.

[PROTESTERS CHEERING]:

And so at this point, they’re feeling really great. They’re like, we did it. We pushed them out of their camp. And when the cops try to push again on those same set of stairs —

[PROTESTER SHOUTS]:

Hold your ground!

— the protesters organized themselves with all these shields that they had built earlier. And they go and confront them. And so there’s this moment where the police are trying to push up the stairs. And the protesters are literally pushing them back.

Push them back! Push them back!

Push them back!

And at a certain point, dozens of the police officers who were there, basically just turn around and leave.

So how does this eventually come to an end?

So at a certain point, the police push in again. Most of the conflict is centered at the front of these barricades. And the police just start tearing them apart.

[METAL CLANGING]

[CLAMORING]

They removed the front barricade. And in its place is this group of protesters who have linked arms and they’re hanging on to each other. And the police are trying to pull protesters one by one away from this group.

He’s just a student! Back off!

But they’re having a really hard time because there’s so many protesters. And they’re all just hanging on to each other.

We’re moving back now.

So at a certain point, one of the police officers started firing something into the crowd. We don’t exactly know what it was. But it really spooked the protesters.

Stop shooting at kids! Fuck you! Fuck them!

They started falling back. Everyone was really scared. The protesters were yelling, don’t shoot us. And at that point, the police just stormed the camp.

Get back. Get back.

Back up now!

And so after about four hours of this, the police pushed the protesters out of the encampment. They had arrested about 200 protesters. And this was finally over.

And I’m just curious, Jonathan, because you’re standing right there, you are bearing witness to this all, what you were thinking, what your impressions of this were.

I mean, I was stunned. These are mostly teenagers. This is a college campus, an institution of higher learning. And what I saw in front of me looked like a war zone.

[TENSE MUSIC]

The massive barricade, the police coming in with riot gear, and all this violence was happening in front of these red brick buildings that are famous for symbolizing a really open college campus. And everything about it was just totally surreal.

Well, Jonathan, thank you very much. We appreciate it.

Thanks, Michael.

We’ll be right back.

Peter, around 10:00 AM on Thursday morning as the smoke is literally still clearing at the University of California Los Angeles, you get word that President Biden is going to speak.

Right, exactly. It wasn’t on his public schedule. He was about to head to Andrews Air Force base in order to take a trip. And then suddenly, we got the notice that he was going to be addressing the cameras in the Roosevelt Room.

They didn’t tell us what he was going to talk about. But it was pretty clear, I think. Everybody understood that it was going to be about these campus protests, about the growing violence and the clashes with police, and the arrests that the entire country had been watching on TV every night for the past week, and I think that we were watching just that morning with UCLA. And it reached the point where he just had to say something.

And why, in his estimation and those of his advisors, was this the moment that Biden had to say something?

Well, it kind of reached a boiling point. It kind of reached the impression of a national crisis. And you expect to hear your president address it in this kind of a moment, particularly because it’s about his own policy. His policy toward Israel is at the heart of these protests. And he was getting a lot of grief. He was getting a lot of grief from Republicans who were chiding him for not speaking out personally. He hadn’t said anything in about 10 days.

He’s getting a lot of pressure from Democrats, too, who wanted him to come out and be more forceful. It wasn’t enough, in their view, to leave it to his spokespeople to say something. Moderate Democrats felt he needed to come out and take some leadership on this.

And so at the appointed moment, Peter, what does Biden actually say in the Roosevelt Room of the White House?

Good morning.

Before I head to North Carolina, I wanted to speak for a few moments about what’s going on, on our college campuses here.

Well, it comes in the Roosevelt Room and he talks to the camera. And he talks about the two clashing imperatives of American principle.

The first is the right to free speech and for people to peacefully assemble and make their voices heard. The second is the rule of law. Both must be upheld.

One is freedom of speech. The other is the rule of law.

In fact, peaceful protest is in the best tradition of how Americans respond to consequential issues. But, but, neither are we a lawless country.

In other words, what he’s saying is, yes, I support the right of these protesters to come out and object to even my own policy, in effect, is what he’s saying. But it shouldn’t trail into violence.

Destroying property is not a peaceful protest. It’s against the law. Vandalism, trespassing, breaking windows, shutting down campuses —

It shouldn’t trail into taking over buildings and obstructing students from going to class or canceling their graduations.

Threatening people, intimidating people, instilling fear in people is not peaceful protest. It’s against the law.

And he leans very heavily into this idea that what he’s seeing these days goes beyond the line.

I understand people have strong feelings and deep convictions. In America, we respect the right and protect the right for them to express that. But it doesn’t mean anything goes.

It has crossed into harassment and expressions of hate in a way that goes against the national character.

As president, I will always defend free speech. And I will always be just as strong and standing up for the rule of law. That’s my responsibility to you, the American people, and my obligation to the Constitution. Thank you very much.

Right, as I watched the speech, I heard his overriding message to basically be, I, the president of the United States, am drawing a line. These protests and counterprotests, the seizing and defacing of campus buildings, class disruption, all of it, name calling, it’s getting out of hand. That there’s a right way to do this. And what I’m seeing is the wrong way to do it and it has to stop.

That’s exactly right. And as he’s wrapping up, reporters, of course, ask questions. And the first question is —

Mr. President, have the protests forced you to reconsider any of the policies with regard to the region?

— will this change your policy toward the war in Gaza? Which, of course, is exactly what the protesters want. That’s the point.

And he basically says —

— no. Just one word, no.

Right. And that felt kind of important, as brief and fleeting as it was, because at the end of the day, what he’s saying to these protesters is, I’m not going to do what you want. And basically, your protests are never going to work. I’m not going to change the US’s involvement in this war.

Yeah, that’s exactly right. He is saying, I’m not going to be swayed by angry people in the streets. I’m going to do what I think is right when it comes to foreign policy. Now, what he thinks is that they’re not giving him enough credit for trying to achieve what they want, which is an end of the war.

He has been pressuring Israel and Hamas to come to a deal for a ceasefire that will, hopefully, in his view, would then lead to a more enduring end of hostilities. But, of course, this deal hasn’t gone anywhere. Hamas, in particular, seems to be resisting it. And so the president is left with a policy of arming Israel without having found a way yet to stop the war.

Right. I wonder, though, Peter, if we’re being honest, don’t these protests, despite what Biden is saying there, inevitably exert a kind of power over him? Becoming one of many pressures, but a pressure nonetheless that does influence how he thinks about these moments. I mean, here he is at the White House devoting an entire conversation to the nation to these campus protests.

Well, look, he knows this feeds into the political environment in which he’s running for re-election, in which he basically has people who otherwise might be his supporters on the left disenchanted with him. And he knows that there’s a cost to be paid. And that certainly, obviously, is in his head as he’s thinking about what to do.

But I think his view of the war is changing by the day for all sorts of reasons. And most of them having to do with realities on the ground. He has decided that Israel has gone far enough, if not too far, in the way it has conducted this operation in Gaza.

He is upset about the humanitarian crisis there. And he’s looking for a way to wrap all this up into a move that would move to peacemaking, beginning to get the region to a different stage, maybe have a deal with the Saudis to normalize relations with Israel in exchange for some sort of a two-state solution that would eventually resolve the Palestinian issue at its core.

So I think it’s probably fair to say that the protests won’t move him in an immediate kind of sense. But they obviously play into the larger zeitgeist of the moment. And I also think it’s important to know who Joe Biden is at heart.

Explain that.

He’s not drawn to activism. He was around in 1968, the last time we saw this major conflagration at Columbia University, for instance. At the time, Joe Biden was a law student in Syracuse, about 250 miles away. And he was an institutionalist even then.

He was just focused on his studies. He was about to graduate. He was thinking about the law career. And he didn’t really have much of an affinity, I think, for his fellow students of that era, for their activist way of looking at things.

He tells a story in his memoir about walking down a street in Syracuse one day to go to the pizza shop with some friends. And they walk by the administration building. And they see people hanging out of the windows. They’re hanging SDS banners. That’s the Students for a Democratic Society, which was one of the big activist groups of the era.

And he says, they were taking over the building. And we looked up and said, look at those assholes. That’s how far apart from the antiwar movement I was. That’s him writing in his memoir.

So to a young Joe Biden, those who devote their time and their energy to protesting the war are, I don’t need to repeat the word twice, but they’re losers. They’re not worth his time.

Well, I think it’s the tactics they’re using more than the goals that he disagreed with. He would tell you he disagreed with the Vietnam War. He was for civil rights. But he thought that taking over a building was performative, was all about getting attention, and that there was a better way, in his view, to do it.

He was somebody who wanted to work inside the system. He said in an interview quite a few years back, he says, look, I was wearing sports coats in that era. He saw himself becoming part of the system, not somebody trying to tear it down.

And so how should we think about that Joe Biden, when we think about this Joe Biden? I mean, the Joe Biden who, as a young man, looked upon antiwar protesters with disdain and the one who is now president and his very own policies have inspired such ferocious campus protests?

Yeah, that Joe Biden, the 1968 Joe Biden, he could just throw on a sports coat, go to the pizza shop with his friends, make fun of the activists and call them names, and then that’s it. They didn’t have to affect his life. But that’s not what 2024 Joe Biden can do.

Now, wherever he goes, he’s dogged by this. He goes to speeches and people are shouting at him, Genocide Joe! Genocide Joe! He is the target of the same kind of a movement that he disdained in 1968. And so as much as he would like to ignore it or move on or focus on other things, I think this has become a defining image of his year and one of the defining images, perhaps, of his presidency. And 2024 Joe Biden can’t simply ignore it.

Well, Peter, thank you very much. We appreciate it.

[UPBEAT MUSIC]

Here’s what else you need to know today. During testimony on Thursday in Donald Trump’s hush money trial, jurors heard a recording secretly made by Trump’s former fixer, Michael Cohen, in which Trump discusses a deal to buy a woman’s silence. In the recording, Trump asks Cohen about how one payment made by Trump to a woman named Karen McDougal would be financed. The recording could complicate efforts by Trump’s lawyers to distance him from the hush money deals at the center of the trial.

A final thing to know, tomorrow morning, we’ll be sending you the latest episode from our colleagues over at “The Interview.” This week, David Marchese talks with comedy star Marlon Wayans about his new stand-up special.

It’s a high that you get when you don’t know if this joke that I’m about to say is going to offend everybody. Are they going to walk out? Are they going to boo me? Are they going to hate this. And then you tell it, and everybody cracks up and you’re like, woo.

Today’s episode was produced by Diana Nguyen, Luke Vander Ploeg, Alexandra Leigh Young, Nina Feldman, and Carlos Prieto. It was edited by Lisa Chow and Michael Benoist. It contains original music by Dan Powell and Marion Lozano, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly.

That’s it for “The Daily.” I’m Michael Barbaro. See you on Monday.

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• May 3, 2024   •   25:33 The Protesters and the President
• May 2, 2024   •   29:13 Biden Loosens Up on Weed
• May 1, 2024   •   35:16 The New Abortion Fight Before the Supreme Court
• April 30, 2024   •   27:40 The Secret Push That Could Ban TikTok
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• April 26, 2024   •   21:50 Harvey Weinstein Conviction Thrown Out

Hosted by Michael Barbaro

Featuring Jonathan Wolfe and Peter Baker

Produced by Diana Nguyen ,  Luke Vander Ploeg ,  Alexandra Leigh Young ,  Nina Feldman and Carlos Prieto

Edited by Lisa Chow and Michael Benoist

Original music by Dan Powell and Marion Lozano

Engineered by Chris Wood

Listen and follow The Daily Apple Podcasts | Spotify | Amazon Music | YouTube

Warning: this episode contains strong language.

Over the past week, students at dozens of universities held demonstrations, set up encampments and, at times, seized academic buildings. In response, administrators at many of those colleges decided to crack down and called in the local police to detain and arrest demonstrators.

As of Thursday, the police had arrested 2,000 people across more than 40 campuses, a situation so startling that President Biden could no longer ignore it.

Jonathan Wolfe, who has been covering the student protests for The Times, and Peter Baker, the chief White House correspondent, discuss the history-making week.

On today’s episode

Jonathan Wolfe , a senior staff editor on the newsletters team at The New York Times.

Peter Baker , the chief White House correspondent for The New York Times covering President Biden and his administration.

Background reading

As crews cleared the remnants of an encampment at U.C.L.A., students and faculty members wondered how the university could have handled protests over the war in Gaza so badly .

Biden denounced violence on campus , breaking his silence after a rash of arrests.

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The Daily is made by Rachel Quester, Lynsea Garrison, Clare Toeniskoetter, Paige Cowett, Michael Simon Johnson, Brad Fisher, Chris Wood, Jessica Cheung, Stella Tan, Alexandra Leigh Young, Lisa Chow, Eric Krupke, Marc Georges, Luke Vander Ploeg, M.J. Davis Lin, Dan Powell, Sydney Harper, Mike Benoist, Liz O. Baylen, Asthaa Chaturvedi, Rachelle Bonja, Diana Nguyen, Marion Lozano, Corey Schreppel, Rob Szypko, Elisheba Ittoop, Mooj Zadie, Patricia Willens, Rowan Niemisto, Jody Becker, Rikki Novetsky, John Ketchum, Nina Feldman, Will Reid, Carlos Prieto, Ben Calhoun, Susan Lee, Lexie Diao, Mary Wilson, Alex Stern, Dan Farrell, Sophia Lanman, Shannon Lin, Diane Wong, Devon Taylor, Alyssa Moxley, Summer Thomad, Olivia Natt, Daniel Ramirez and Brendan Klinkenberg.

Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Sam Dolnick, Paula Szuchman, Lisa Tobin, Larissa Anderson, Julia Simon, Sofia Milan, Mahima Chablani, Elizabeth Davis-Moorer, Jeffrey Miranda, Renan Borelli, Maddy Masiello, Isabella Anderson and Nina Lassam.

Jonathan Wolfe is a senior staff editor on the newsletters team at The Times. More about Jonathan Wolfe

Peter Baker is the chief White House correspondent for The Times. He has covered the last five presidents and sometimes writes analytical pieces that place presidents and their administrations in a larger context and historical framework. More about Peter Baker

Luke Vander Ploeg is a senior producer on “The Daily” and a reporter for the National Desk covering the Midwest. More about Luke Vander Ploeg

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