Are We Mainly Funding New Real Activities versus Buying and Selling Money?
What This Means
GABV uses the term “Real Economy” to differentiate from the “financial economy”. A loan made to a person or an entity that provides products or services in the community is called a real economy transaction. When a bank purchases or sells loans or securities on the secondary market, that is considered a financial economy transaction – it is the purchase of money.
Why This is Important
Values-based banks are strongly and directly connected to financing the real economy because that’s where they can have a positive impact on people’s lives and safeguard the environment. As such, Beneficial State does not engage in speculation, investment banking, trading or trying to extract synthetic value from the economy.
Real economy assets in a values-based bank should be relatively high. Financial economy assets should be relatively low because their impact on people’s lives is, at best, indirect. This does not mean that no financial economy transactions are mission-aligned. With indirect lending, we support other mission-aligned and specialty lenders that share our values and contribute to the greater good. For example, a nonprofit lender may have expertise in making particular kinds of mission-impactful loans, like residential solar financing. In order for that nonprofit to have more money on hand to make more of these loans, we may purchase some of their loans. That’s a financial economy transaction because we’re purchasing loans. However, it’s a mission-aligned activity because we are not only helping that nonprofit make more mission loans, but the loans we purchased are intrinsically mission-aligned.